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3rd Quarter GDP: Better Than First Thought But Not Good Enough

The economy expanded at a 2.5 percent annual rate in the third quarter, according to a new Commerce Department estimate released today. Today’s estimate is higher than the preliminary estimate of 2.0 percent made a month ago, and it is slightly better than markets were expecting. But it’s not good enough to pull us out of the deep hole created by the Great Recession.

As the chart below shows, despite five straight quarters of economic growth, the demand for goods and services (“actual GDP”) remains about 6 percent ($955 billion) less than what the economy is capable of supplying (“potential GDP”). This large output gap is reflected in a high rate of unemployment and substantial idle productive capacity among businesses.

Recent economic growth rates have been barely enough to keep up with the growth in potential GDP arising from population growth and investment in new productive capacity. They are far too low to close the gap created by the recession and restore full employment anytime soon.

See our chart book for more charts on the legacy of the Great Recession.