The next two charts show the state of the economy in a little different context. The first chart below is the “Output Gap” of the economy which is the difference between what the economy is currently producing and what it could be potentially producing.
Historically, when that GDP is greater than 0% the economy has been in, or was about to be in a recession. The current output gap is a whopping 5.62% which is where the economy was during one of the nastiest recessions on record in the 70’s and early 80’s – not 4 years into an economic recovery.
The fact that the economy is not really recovering from an output standpoint is a point continually dismissed by the mainstream economists but is critical in answering why real employment has been so lackluster.
The last chart in this section is real final sales. Like the annual growth rate of GDP when real final sales are at levels below 2% it has been historically coincident with
recessions. As of the latest reading real final sales is at 1.87%. More importantly, like GDP, it appears that real final sales have peaked for the current economic cycle.
It is clear that the bump in GDP for the 1st quarter of GDP is a “Hurricane Sandy” related bounce. From this view, along with the current economic data trends, it is likely that this will be one of the highest readings of GDP this year.
This is likely more than just a temporary slowdown in the economy at present
which is why the Fed went from discussing slowing the current QE programs
to expanding them.