The new Gross Ouput data was released in mid-December, but I’ve just become aware of it now. The new data is shocking in terms of its revelation into the nature of the “Great Recession.”
As shown in the chart below, just as with the two previous recessions, the drop in Intermediate Inputs (II) was much steeper than Gross Domestic Product (GDP). As a quick refresher, II represent what businesses buy while GDP represents what consumers buy (with some caveats).
However, unlike the previous two recession, this recession saw a whopping 13.2 percent plunge in II. GDP, on the other hand, fell by a mere 2.7 percent. Though both II and GDP fell further than in the last two recessions.
Yet, I think the key to understanding what’s going on the economy in terms of the lack of employment growth is rooted in this II plunge. If businesses aren’t investing, then they have no need for additional labor. We know that GDP turned positive in 2010, but its unlikely that II did (though the decrease surely, or hopefully, eased).
Long story short, until II is strongly back into positive territory, I don’t think you will much of positive change in the unemployment rate. The chart also shows that there is a significant lag between when GDP goes positive and when II goes positive. Given the large plunge in II, that lag maybe longer than usual as well. This suggests we won’t see strong employment growth until at least 2012.
It’s too bad we can’t get this data more quickly . . .