The fragility of GDP glee

Had Washington's budget not subtracted from GDP growth over the past three years, the US economy would be around 4 per cent larger. It's a crucial point to consider as the election nears.

It goes to show how fragile financial markets are when they greet news of US quarterly GDP growth of 2.0 per cent (annualised) with glee. Stocks in the US closed well off their lows after the September quarter GDP outcome exceed the uninspired expectations of market economists. In the June quarter, annualised GDP growth was a paltry 1.3 per cent, meaning the last six months in the US economy have been anemic.

To put the current growth momentum in some context, long-run annual trend GDP growth in the US is widely estimated to be close to 3 per cent. In fact in the last 30 years, GDP growth in the US has averaged 2.9 per cent, so near 3 per cent will do.

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