GDP can't really tell us when a recession is over

http://www.businessweek.com/magazine/content/09_45/b4154034724383.htm?chan=magazine+channel_top+stories

So Washington is jumping for joy that the 3rd quarter GDP growth numbers were POSITIVE (3.5%) after 4 straight negative quarters. The stock market has surged from its low in March (Dow 6,000s) to now (Dow 9,700). Auto and home sales are up too (mostly due to gov't incentives, and are expected to decline as rebates expire, so really it was just a loan from the future). Consumer spending has risen in some months, and of course the US personal savings rate has grown. Though unemployment is around 10% (those jobs may not return for years), and recent college grads are having a harder time getting hired than ever before. The White House says its spring stimulus package created or saved 1.2M new jobs (then reduced the figure to 0.65M when errors were exposed). But many of those jobs are temporary (highway projects) or non-white-collar, and 0.65M is less than 10% of the ~7M jobs lost since last fall. The stimulus did have some benefits, and gov't spending will always create jobs. But is it worth it? Nearly $1T in stimulus spending saved/created jobs for 0.43% of the American workforce, at the cost of $153K/job (triple the average household income). I know that is an unfair calculation since the stimulus was not 100% geared for job creation, but you get my point.

So what is going on? Are we out of the woods yet? GDP doesn't take into account R&D or other business investments that pay off big for the future economy. Of course those things are challenging to quantify, but it is possible. "Intangible business investments" were 40% smaller than tangible assets (equipment, buildings, etc. that the GDP can capture) in 1985, then the two were equal by 1995, and now intangibles are actually higher. America's wealth, innovation, and productivity have grown tremendously since 1985, and intangibles played a big part. The Bureau of Economic Analysis (the overworked and underfunded agency that calculates the GDP) plans to include some measure of intangibles into the GDP by 2013, so it is clearly important. Based on the author's rough calculations, drops in intangibles could make the real GDP 1-1.5% lower than the published figure.

While the GDP was supposedly rising, more and more professionals got pink slips (especially R&D scientists and engineers) in order to cut costs. In fact, techies are getting laid off at 150% the rate of the overall workforce, so it's not just the assembly line workers in the Rust Belt suffering this year. Companies want to do this to inflate their profit margins and please Wall Street (hence gains in the Dow), but they're sacrificing their future for short-term fiscal savings. Venture capital investments are half of what they were in 2008 (much of that money goes to hiring smart people to develop cool stuff), and big names like Texas Instruments and J&J have cut their R&D budgets by over 10%. Expenditures on worker training is also down (it was already down 4% in 2008, so 2009 is probably higher - though the data is not available yet), which is contrary to one of the stimulus package's goals of retraining workers for the 21st Century economy.

So what is the point of an economic recovery that threatens future development and productivity? We're just kicking the can down the road, like the Band-Aid patches for California's debt. I don't have brilliant ideas to truly end the recession, but it seems that declaring a recovery is premature.