An important milestone was achieved in today's Commerce Department release of the National Income and Product Accounts: Real GDP in the fourth quarter of 2010 finally hit the peak it recorded in late 2007, when the Great Recession began.
The figure is clear evidence that the business cycle has moved from a period of recovery to one of expansion. That may be of little solace to the millions of Americans who still don't have jobs, but it indicates that the U.S. economy is on the mend.
I won't say I told you so. ... On second thought, maybe I will.
I predicted this expansion in our July 2010 report "From Recession to Recovery." Most of my economist colleagues - and virtually everyone else - thought I was loony for making that forecast. I still might be loony, but I was more accurate than anyone else who was willing to place a wager. I acknowledge that the U.S. economy hit a soft patch in late spring last year, but more economists and business leaders have come around to my perspective in the past couple of months.
What is that perspective? It is that the economy will grow close to 3.5 percent in 2011 and 2012, slightly above the long-term potential of the economy but not enough to reduce the unemployment rate to 7 percent until 2014. Not the kind of performance that tends to get incumbent presidents re-elected.
Real gross domestic product surpasses previous peak
Sources: Bureau of Economic Analysis, IHS Global Insight.
Why have others come around to a more optimistic outlook? Mainly because the evidence is overwhelming. Most analysts thought the consumer was dead in the water. The growth in retail sales for December 2010 was the strongest in six years and 5.7 percent better than the December before. Light vehicles sold at an annual pace of 12.5 million in December, up 12.6 percent from the year before. Overall industrial production rose 5.9 percent year-over-year. New home sales jumped 17.6 percent from November's level. You get the picture. The list of favorable economic indicators is lengthy.
We are at the point in this business cycle where economic growth is becoming self-sustaining with little need for fiscal or monetary support. In other words, the training wheels can be removed very soon. The 3.5 percent growth in real GDP is an important barometer. It is high enough that productivity growth will require businesses to hire so they can meet the expansion in demand. At that rate, roughly 200,000 jobs per month can be created in the private sector. And that is good news for all of us.