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The factors behind GDP growth

Bob Moon Oct 29, 2010

The factors behind GDP growth

Bob Moon Oct 29, 2010


Kai Ryssdal: The White House wasted no time in making note of today’s report on gross domestic product: five straight quarters of positive economic growth.

But the president’s top economic adviser Austan Goolsbee did offer a caveat. Faster growth, he said, is needed to bring down the unemployment rate more quickly.

So if an annual growth rate of 2 percent isn’t enough, what is? We asked our senior business correspondent Bob Moon to take a stab at finding out what the number might be, and how we might get there.

Bob Moon: It’s simple mathematics, really: To come up with a growth rate that’s high enough to start putting Americans back to work, we need to factor in how productive those who do have jobs have been.

Chris Low is chief economist at FTN Financial.

Chris Low: Productivity is essentially the rate of growth at which companies are evolving to get more product out of fewer people.

In other words, much of the demand for goods and services is being absorbed by those already employed. And until demand outpaces the number of workers that companies are getting by with, the rate of growth isn’t fast enough.

Low: Right now, productivity’s running at a 4 percent rate. So we need GDP growth of 4 to 4.5, just to pull the unemployment rate down.

How we get there isn’t such a simple equation. At Decision Economics, managing director Cary Leahey says it would help to sell more goods and services overseas. Our manufacturing exports are on the rise. But the catch-22 is, other countries — notably China and Germany — are counting on the same thing.

Cary Leahey: If everyone tries to run a trade surplus, you’ve got to have somebody run trade deficits.

And at High Frequency Economics, Ian Shepherdson says even if we do sell more abroad, it won’t be enough.

Ian Shepherdson: Bearing in mind that exports only comprise about 12 percent of GDP, it’s pretty clear that that’s not going to be the salvation. The U.S. really is a big domestic economy, and what we need is domestic spending, and what that needs is domestic credit.

Not only so consumers can spend more, he says, but also to prime the pump for small businesses that employ half of all American workers.

I’m Bob Moon for Marketplace.

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