The Shocking Truth About U.S. Economic Growth

Don't listen to the media. The economic recovery in the U.S. is better than anyone wants you to believe.

While the U.S. economy has continued to gain steam following the end of the Great Recession, many have begun to question why the recovery hasn't rebounded from the depths of the crisis, like previous recessions. In June of last year, The Wall Street Journal ran an article titled "Slow-Motion U.S. Recovery Searches for Second Gear."

There was the Time magazine cover in April 2012 called "The Wimpy Recovery," with the sub-headline "Yes, the economy's getting stronger. But why does it feel weak?" Just last week, CNN ran a story called "State of the Union: Economy -- for many, a slow recovery." And while there is no denying things are improving from where we've been, countless have wondered if this is where we should be.

Things can still get better, but the U.S. economic recovery is in a much better place than first glance would indicate.

Beyond one number
Gross domestic product, or GDP, is the measure of a country's total economic output. It takes all the consumer, government, and business spending, and then it adds in its net imports, which is the difference between what it exports to other countries versus what it imports in. It is one of the most common and vital important indicators of how healthy, or unhealthy, a country's economy is.

A recession is actually measured when the GDP of a country falls for two consecutive quarters, which means total output across all four major categories added together falls. Since 1950, there have been 10 recessions, and the longest one, lasting 18 months, was the most recent one, which lasted from December 2007 to June 2009.

But as shown in the following chart, in the four and a half years since the recession ended (how far we're currently removed from the last recession) the recovery has been the most tepid, with GDP growing by only 11% since it bottomed out in June of 2009:

The reason for the slow recovery
With the slow recovery in mind, it's easy to think many are right to proclaim the idea that the status of the U.S. as the economic superpower is waning, and it won't be long before China and other countries begin to overtake it. However, while it may seem like the recovery has been slow based on a glance at GDP, it's worth exploring all five parts of GDP to get a true understanding.

One of the biggest reasons for the supposed slow growth following the end of the most recent recession is that government spending (which represents roughly 20% of total GDP) has fallen by 7%, or $225 billion, over the past four and a half years.
And while personal consumption -- which is the biggest component of the GDP -- is still the slowest moving, investment by businesses was the fourth fastest, while the total improvement in net exports (exports-imports) was the second best.

In fact, if you simply exclude the government spending component of GDP, growth moves from 11% to 16.4%, which still places it ninth, but it narrows the gap considerably:

The Foolish bottom line
While many people will tell you the U.S. economy is losing steam and its stronghold as the world's dominant economic power because the growth in GDP following the Great Recession isn't what we typically see, it's vitally important to account for and measure all the components of GDP, not just the raw number.

Although 16.4% growth isn't going to garner any front-page attention, the truth is, the current economic recovery is much better than many people are willing to give it credit for.

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  • Report this Comment On February 02, 2014, at 10:04 AM, sobe02 wrote:

    This reads like a Dr. Pangloss pronouncement that we have the best of all possible economies. Really?

    With household income stagnant is it any wonder that personal consumption declines? With the Fed holding down interest rates the value of the dollar was depressed boosting exports. Now that tapering has started if interest rates rise, exports will again decline due to relentless asian mercantalist policies. We have banks too big to fail made even bigger by throwing the bulk of recovery act funds at em. We have no jobs policy to assure recovery. The only bright spot we have is the rise of oil and gas production despite the best wishes of the current administration.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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