August 1, 2013

GDP Report a Concern for Labor Market

Keith Hall

Former Senior Research Fellow
Summary

The initial estimate of 1.7 percent GDP growth for the second quarter of 2013 was higher than expected, but growth overall has still been sluggish and the recovery remains the slowest on record. Mercatus Center senior research fellow Keith Hall—Former Bureau of Labor Statistics—says that the job creation we’ve seen could slow down unless economic output starts to increase.

Contact us
To speak with a scholar or learn more on this topic, visit our contact page.

The initial estimate of 1.7 percent GDP growth for the second quarter of 2013 was higher than expected, but growth overall has still been sluggish and the recovery remains the slowest on record. Mercatus Center senior research fellow Keith Hall—Former Bureau of Labor Statistics—says that the job creation we’ve seen could slow down unless economic output starts to increase.

“This slow economic growth will eventually weaken job growth in the second half of the year.”

While the U.S. has gained an average of 202,000 new jobs per month in 2013, the average GDP growth this year of 1.4 percent is historically consistent with job growth of only about 100,000 per month, according to Hall.

“Expectations for Friday’s job report remain pretty solid, but GDP growth is very low relative to current monthly job gains, and this will lead to continued slow wage growth and may eventually lead to a decline in job creation. That’s especially concerning given that the average monthly job gains we’ve seen this year, while an improvement over 2012, still aren’t enough to help the labor market fully recover from the recession.”

Hall also says that reduced government spending has not had much of an impact on economic growth, based on the latest GDP report.

“The drag from the decline in government spending has lessened significantly. Shrinking government spending reduced GDP by 0.1 percent in the second quarter after subtracting 1.3 and 0.8 percentage points in the fourth quarter of 2012 and first quarter of this year, respectively.”