Analyzing the recession

This morning BEA released its sector by sector breakdown of the 2008 GDP. The analysis confirms some of what we knew about the slowdown, but also reveals some other interesting facts. We knew that the slowdown hit the construction, manufacturing, retail and finance sectors. The BEA data on real value added in 2008 in each of these sectors confirms that. Real value added in construction dropped by 5.6% in 2008. Manufacturing real value added declined by 2.7%, with manufacturing of non-durable goods down by 4.6%. Retail related sectors were down, with transportation and warehousing dropping by 3.7%. Finance and insurance was down by 3.0%.
But here is the interested part. Construction actually started declining much earlier: down 0.5% in 2005, 4.1% in 2006 and a whopping 11.2% in 2007. So 2008 was actually an improvement. And while finance was down, real value added in the real estate sector (including renting and leasing) was actually up 1.8% in 2008 – although that was a slowdown from the 3.3% increase in 2007.
The “information economy” was still growing in 2008. The real value added in the information/communications sector increased by 5.2% in 2007 – again slower growth than the 8.1% increase in 2007. Growth in real value added in professional, scientific and technical services actually increased in 2008 over 2007 – an 8.7% increase in 2008 compared to a 7.1% increase in 2007.
The BEA data also shows that the goods producing part of the private sector slid into recession back in 2007 – when its annual growth in real GDP decline by 0.7%. The decline was, of course, even greater in 2008 – down 3.0%.
What this new data tells me is that the economic slowdown was caused by a variety of factors. It was not simply a lock up of the financial or house markets. There were significant weaknesses, and strengths, baked into the economy. Any sustained recovery will need to be based on correcting those weaknesses and building on the strengths. Including the strengths of the I-Cubed portion of the economy.


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