Still crawling

The latest data on real GDP growth from the US and the UK continue to confirm that the recovery of the major capitalist economies is very weak, indeed the weakest of all recoveries from the last five slumps since world war 2.  The final US data for Q1 2013 real GDP came at a annualised rise of 1.8% from the previous quarter.  The US economy now has real GDP growth of just 1.6% year-on-year, slowing from a 2.4% yoy rate last summer.   The slowdown in this quarter was caused by three factors: first, real investment growth by businesses and government has slowed to a near halt.  Second, exports have started to decline and third, there has been a sharp cutback in government spending, mainly in defence as the wars in Iraq and Afghanistan are wound down, but also in government investment and local government.

Most significant is that US corporate profits fell in the first quarter of this year, down before tax by $34.7 bn after an increase of $27.3bn in the fourth quarter of last year. Companies reduced their dividends in order to try and keep cash available for investment, but investment still declined.   Corporate profits have been flat-lining for the last three quarters after a spectacular rise from the trough of the Great Recession in mid-2009.  In real terms, or as a share of GDP, they are now falling.


The productive sector of the US economy continues to struggle to get back to the levels before the global slump.   At its current pace, US manufacturing isn’t likely return to pre-recession levels for at least year and a half.

Manufacturing output held nearly flat in May after falling the previous two months.  Early in the recovery, factories were a major source of growth—with output advancing 6.2% in 2010. The gains have slowed every year since and the latest data suggest the sector will shrink this quarter.

If we look at US per capita real GDP growth i.e the growth in national output per person, the situation is even worse.  Based on Doug Short’s excellent figures, the US economy remains over 1% below its previous peak back in 2007 – some five to six years later.


And looking at more high frequency indicators of economic activity like employment, retail sales and real disposable incomes, the US appears to be tapering off well below pre-recession levels.


The US economy is doing poorly but its performance is way better than that of the UK.  The UK economy remains 3.9% smaller in real GDP than it was at its peak, following revised GDP statistics.  During the Great Recession, the UK economy, with its heavy weighting towards financial and business services, contracted by 7.2%.  And real per capita GDP is still  7.6% below its pre-crisis peak compared to the US shortfall of just over 1%.  With UK real GDP per capita at the same level as it was in 2004, nine years later, it truly is a wasted decade – and we are not finished yet.  This poorer performance is also partly due to the contraction in oil and gas production, which was the great booster to UK growth in the 1980s and 1990s under Thatcher and successive governments.  But now the energy sector is a negative.  The supposed shale gas reserves in the UK are still a long way from being exploited.

The UK chancellor attempted to suggest that the economy was on the mend when he presented a new round of harsh government spending reductions to the UK parliament this week.  But the Q1 2013 figures don’t suggest that.  Compared with the peak of the first quarter of 2008, consumer spending is down 2.9% in real terms and investment is down an astonishing 24.8%. And the external balance is getting worse: it was a negative 2.3% of GDP in 2007, and is now in deficit at 3.6% of GDP, as UK exports to Europe dive and financial services exports stagnate.

The two major Anglo-Saxon economies are crawling along, while the Eurozone stays mired in recession.


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