Economic Growth in the U.S. Since 1930

Mon, May 9, 2011 - 9:28am

My Friday update on the Philly Fed ADS Business Conditions Index triggered an interesting email from Jim in Santa Fe.

The use of linear regression suggests a long term decline in GDP, ADS, etc. However, as a linear regression it does not depict whether the trend is accelerating over time, or otherwise. Any possibility of showing a curve, or perhaps a multi-year moving average (instead of the 91 day?) I suppose the multi-year average would be highly skewed by the 2008-9 recession.
What I am trying to see is whether there is some inflection point at which the decline begins, or if it is a smooth decline as depicted by the linear regression. If so, then one might ponder what changed at that point.

Before responding to Jim's question, let's take another look at the charts in question. The Business Conditions Index article included two charts with regressions. The first is an overlay of the Philly Fed index, constructed from data since 1960, and the similar Chicago Fed National Activity Index, which reaches back to 1967. A second focused quarterly real GDP over the same time frame.

Click for a larger image

Click for a larger image

The national income and product accounts (NIPA's), on which GDP is based, were developed during the economic crisis of the 1930s (more here). Annual data was reconstructed to 1929 and quarterly data began being calculated in 1947.

Here is a pair of GDP charts covering the official annual and quarterly data series from the St. Louis Federal Reserve Economic Data, better known as FRED. I've included linear regressions and 5-year moving averages to highlight the general trends.

Click for a larger image

Click for a larger image

As both charts show, the U.S. economy has generally slowed over the decades shown. But the decline is not really surprising. Over the twentieth century the U.S. went from the growth era of a post emerging market with a dominant manufacturing sector to a mature post-industrial economy. The rate of growth would normally be expected to slow. But the ride is bumpy because of normal business cycle volatility, not to mention the impact of the occasional war, investment bubble, financial crisis, etc.


About the Author

VP of Research
dshort [at] advisorperspectives [dot] com ()