Is growth what we want?

I got an email from a participant at the Center for Popular Economics 2011 Summer Institute, which I was fortunate enough to be able to teach. It was, as always a crazy busy, exciting week. The question concerned growth: whether I thought growth was necessary, and how it is related to employment. It's a pretty big question. In economics, the questions don't get much bigger. So I promised to write a blog post to give my answer. And this is that blog post. I will do my best to answer broadly, simply, and, I hope, intelligibly for any audience no matter how much or how little economics they may have been subjected to previously.

Quicker growth? first estimate of fourth quarter GDP growth released

Catherine Rampell reports based on a BEA release that in the 4th quarter real Gross Domestic Product (sometimes referred to as 'the economy') grew at an annual rate* of 5.7%. Since this is a first estimate, Rampell rightly points out that the first estimate for 3rd quarter annual growth rate was 3.7%, which has since been revised downward to 2.2%. Less encouraging still is the fact that more than half of the reported growth is increase in inventories, meaning businesses didn't sell as much stuff as they were planning to, or are building up inventories in expectations of a return to higher consumer spending. But the latter added only 1.44% to the overall growth rate, half a percent off from its 3rd quarter showing. Given the continuing job losses last quarter, inventory increases coupled with a consumer spending slow down looks to me like a bad situation for employment in the near future.

* Annual growth rate here means that if the economy grew as fast as it did in the 4th quarter all year, the economy would grow by 5.7%.

Industrial Production Up, But Not By Much

The Fed released its Industrial Production and Capacity Utilization report today, showing the first increase in production since December 2007 (other than a hurricane-related bump last October). Probable sign of a turnaround, yes, but overall production is down over 13 percent since last July. Consumer goods is least worst with a mere 7.2% drop. And capacity utilization (roughly: actual production divided by potential production), at 68.5%, is still just above its lowest level in the 45 years reported in the accompanying charts. We're in a deep hole, which will take some time to climb out of.