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What We Talk About When We Talk About Growth
Our New Template The U.S. should be able to achieve fast growth again. We have talented people, a great market-based system built on private-sector ownership, and a huge base of assets and resources. We should set our sights high — 4% real growth as a goal. To help measure our progress toward the goal of 4% real growth, we’ve set up a ticker of economic indicators aimed at answering the question: Are we moving toward or away from fast growth? Legend for the Ticker Indicators:
- Real GDP growth over the last 12 months (1.6% in the fourth quarter of 2011; nominal GDP reached $15.3 trillion in 2011). U.S. growth has often topped 4% for sustained periods, including 1983-1986 (8.5% peak), 1996-2000 (5.4% peak) and a brief 4.1% peak in 2004. The debate since 2008 is whether the U.S. has sunk into a “new norm” of 2% growth.
- Household job-creation over the last 12 months (2.1 million through January, reaching 141.6 million). The Labor Department surveys households each month to ask how many people are working. It includes new businesses, self-employment, and temporary employment, which are often key indicators of future growth.
- Durable goods orders (up 14% in December 2011 from December 2010). Consumers and companies buy products that last (durable goods) when they can afford them and are optimistic about the future.
- After-tax corporate profits (up 11% over the last 4 quarters). Profits have almost always fallen prior to recessions and risen strongly prior to periods of fast growth. They are the source of job growth and capital investment. The government measures profits as part of its GDP statistics and includes both big and small corporations. The change in after-tax profits provides a litmus test of whether the overall economic climate is pro-growth.
- Real disposable personal income per capita, $32,500 in December 2011, reported in 2005 U.S. dollars. This incorporates people’s after-tax pay adjusted for inflation.
- Real median household income, down 2% (estimate) in 2011. One of the goals of economic progress is to increase the real income of the median household, the center of the middle class.
- Transfers as a percent of personal income (17.9% in December 2011). This indicator falls when the economy is strong and rises when it’s not. It reflects changes in personal income (up 3.8% over the last year) and changes in transfer payments as people draw more on the social safety net or the Social Security system.
- Productivity growth over the last 4 quarters (output per hour worked was up 0.9% in the fourth quarter of 2011).
- Global growth expectations. The World Bank expects real growth to rise 2.5% in 2012, down from 2.7% in 2011. It expects U.S. growth to be 2.2%; Europe -0.3%; Japan 1.9%; China 8.4%; India 6.5%.
- Eurozone real GDP growth over the last 12 months, up 0.7% in December 2011, reaching $13.3 trillion.
- China’s real GDP growth over the last 12 months, up 9.1% in December 2011, reaching $7.0 trillion.
- India’s real GDP growth over the last 12 months, up 6.5% in December 2011, reaching $1.8 trillion.
- Financial Trust Index, currently 23%. Confidence in the financial system sank low in 2008 in the aftermath of the Lehman bankruptcy and the paralysis in the financial system. It’s recovering slowly.
- U.S. pupils ranked 25th relative to 33 other industrialized countries in mathematics achievement (Bush Institute measure available at www.globalreportcard.org).
- Five-year change in the value of the dollar. The Founders defined the dollar in terms of gold and silver. The price of gold is up 165% and the price of silver is up 140%. Throughout history, people have thrived when they have access to sound money, including the Roman Empire, China’s dynasties, the British Empire with its pound sterling, and the American Republic in its first 185 years.
- Interest in tax reform (Google searches on “tax reform” are running 13% below the historical average).
- Three-year growth in federal spending, up 11% in December 2011 versus December 2008. With national debt high and rising, fast growth in federal spending has become a major confidence hurdle for the private sector.
The measures included in the above list are not the only indicators that gauge real economic growth. Indicators such as industrial production, exports, or capital goods orders are also useful. In the future, the 4% Growth Project may add to this initial list of indicators, but the data included in this inaugural ticker are indicators of real growth that we should be watching closely.
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