The statement that our economy is growing at the fastest pace in nearly twenty years has been repeated numerous times in the news recently. It's been interesting to watch the evolution of this claim. When I first heard it in late April, it was based on GDP growth over the last four quarters of 4.95 percent. As can be seen in the table at this link, this just barely beat a number of 4-quarter spans ending from 1997 through 2000. The next highest growth rate was 4.85 percent in the span ending in the 2nd quarter of 2000. In any case, this fact was reported in numerous places as the fastest economic growth in nearly 20 years. For example a page on the White House web site stated:
Economic growth over the last year has been the fastest in nearly 20 years.
A problem occurred on June 25, 2004 when the GDP growth for the first quarter of 2004 was revised downward. This caused the growth in the last four quarters to drop to 4.82 percent, lower than the 4-quarter span ending in the 2nd quarter of 2000. This caused the claim that had been just barely true to become just barely false. The aforementioned page on the White House web site then changed the above statement to:
Economic growth since last summer has been the fastest in nearly 20 years.
It's not obvious to the casual reader but this serves to change the period being compared from the last four quarters to the last three quarters. Those three quarters are the last two of 2003 (since "last summer") and the first quarter of 2004. For these three quarters, the claim is still true. In any case, a copy of the old wording can still be seen in a PDF file on the National Stone, Sand and Gravel Association web site. A link pointing to this file and labelled "Latest from the White House" can be found at http://www.nssga.org/government/.
Instead of switching the comparison to the last three quarters, a number of sources switched the comparison to a projection of GDP growth for all of 2004. That is, they kept the comparison at four quarters but switched from actual GDP growth to projected GDP growth. They also switched from the quarterly to the annual GDP figures listed at http://www.bea.gov/bea/dn/gdplev.xls. Following are the annual GDP figures since 1980:
PERCENT CHANGE IN REAL GDP
GDP GDP
(billions (billions
current chained Percent
Year dollars) 2000 $) Change
---------------------------------
1980 2789.5 5161.7 -0.23
1981 3128.4 5291.7 2.52
1982 3255.0 5189.3 -1.94
1983 3536.7 5423.8 4.52
1984 3933.2 5813.6 7.19
1985 4220.3 6053.7 4.13
1986 4462.8 6263.6 3.47
1987 4739.5 6475.1 3.38
1988 5103.8 6742.7 4.13
1989 5484.4 6981.4 3.54
1990 5803.1 7112.5 1.88
1991 5995.9 7100.5 -0.17
1992 6337.7 7336.6 3.33
1993 6657.4 7532.7 2.67
1994 7072.2 7835.5 4.02
1995 7397.7 8031.7 2.50
1996 7816.9 8328.9 3.70
1997 8304.3 8703.5 4.50
1998 8747.0 9066.9 4.17
1999 9268.4 9470.3 4.45
2000 9817.0 9817.0 3.66
2001 10100.8 9866.6 0.51
2002 10480.8 10083.0 2.19
2003 10987.9 10398.0 3.12
As can be seen, a projected annual growth of 4.6 percent would be the highest annual GDP growth since 1984, just barely beating 4.5 percent in 1997 and 1999. In any case, the goal of switching the precise manner of measurement is obviously intended to revalidate the impressive-sounding claim that we are experiencing the fastest economic growth in 20 years.
In fact, this feat may be much less impressive than it appears. There is some reason to question how much the recent GDP growth may be due to historic levels of monetary and fiscal stimulus. Following is an excerpt from an excellent article in the Economist titled "Europe v America":
But even if the euro area has not lagged far behind America, does not its pathetic growth over the past couple of years bode ill for the future? Surely America's stronger rebound since the global economic downturn in 2001 is proof of greater flexibility in its economy? In fact, both suggestions are questionable. The main explanation for America's more rapid recovery is that it has enjoyed the biggest monetary and fiscal stimulus in its history. Since 2000 America's structural budget deficit (after adjusting for the impact of the economic cycle) has increased by almost six percentage-points of GDP. Meanwhile, the euro area has had no net stimulus (see chart 3).
American interest rates were also cut by much more than those in the euro area. Without this boost, America's growth would have been much slower over the past three years. In other words, America's much faster growth of late may mainly be the result of looser (and unsustainable) fiscal and monetary policies, rather than greater flexibility.
The entire article can be seen at this link.