A Primer on Recession Indicators: Gross Domestic Product and Unemployment
Unemployment statistics are an important indicator of how our economy is doing; more people employed points to stronger business growth and to fewer people receiving government entitlements. However, this is a little difficult to track, since the government doesn’t really publish a combined statistic that truly indicates what is happening. Most people who study this issue follow these three indicators: 1- percentage of people unemployed, 2- monthly change in non-farm payrolls, and 3- jobless claims for unemployment insurance. The most discussed statistic is the unemployment rate; reading the explanation above illustrates how this number falls short.
Gross Domestic Product, GDP tracks the size of our economy by calculating the total dollar value of all goods and services produced over a specific time period in comparison with the previous quarter. For 2012 GDP slumped to 2% in the first quarter, and 1.3% for the second, so the announcement of 2.7% for the third quarter is good news. Is this a great indication? Well any increase is good, however this would only add up to 2.1% for 2012. Looking back at the most recent recessions, from a presidential term perspective, provides some challenging information. Economic recovery under Ronald Reagan, GDP averaged 4.4% from 1995 – 2000, assuming you take out his first two years in office, where there was negative GDP, as it took some time for his policies to take affect. Bill Clinton took office in weak economic times, but not nearly as bad as Reagan. Under Clinton, GDP averaged a decent rate of 3.1% from 1994 – 2000. This assumes you don’t take into consideration his 1st year in office, when there was negative GDP. Under President Barack Obama it has averaged 2.1% if you don’t include his first year with negative GDP. How does this compare to those other Administration’s first few years in office? In Reagan’s first 3 good years GDP averaged 5.3%, and for Clinton it averaged 3.4% for his first 3 good years in office.
Technically a recession occurs when business cycles retract, evidenced by down consecutive quarters of GDP, or a 12 month 1.5% or more rise in unemployment.