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Q & A: The Commerce Department’s Report on GDP and What It Means for the Economy and Job Creation


Chad Stone, the Center’s Chief Economist, discusses what the Commerce Department’s new report on gross domestic product means for the economy and job creation.

1. Chad, according to the Commerce Department, the economy grew at a 3.2 percent annual rate in the fourth quarter of 2010. That was a little slower than analysts were expecting, but you saw some hopeful signs for the economy and job creation in the report. What were they?

You’re right, Michelle, that 3.2 percent growth in gross domestic product – or GDP --is disappointing compared with the kind of growth we need to really make progress creating jobs and bringing down the unemployment rate. Until businesses become confident that they will see strong growth in sales, they’ll be reluctant to hire new workers, and sales just haven’t been growing very fast at all since the recovery began in July 2009. That changed in the fourth quarter, when final sales of goods and services surged 7.1 percent at an annual rate.

2. What’s the difference between final sales and GDP?

GDP measures the output of goods and services we produce in the United States, but not everything we produce gets sold immediately. For most of 2010 final sales to consumers, businesses, and government were less than GDP. The difference was a buildup of inventories of unsold goods. What happened in the fourth quarter is that sales surged and businesses met the surge in sales out of inventories. Instead of goods piling up on the shelves, they started to fly out of the stores for the first time in the recovery.

3. What does this mean for job creation?

Well, we already know that in the fourth quarter job creation remained weak relative to the size of the jobs deficit left over from the recession, even as sales were surging. But if the pickup in final sales continues and goods keep flying off the shelves, businesses may finally have an incentive to start hiring in earnest. The Federal Reserve has policies in place that would support a pickup in economic activity and the tax-cut/unemployment insurance deal enacted at the end of 2010 is giving the recovery a boost. The biggest threat at this point is proposals in Congress that would slam on the brakes by slashing federal spending immediately.

4. The Labor Department will release a new jobs report this Friday. What are you expecting?

It’s very hard to predict month-to-month changes in job creation and unemployment. Analysts expect modest job growth of about 125,000 jobs and a slight uptick in the unemployment rate from December’s unexpectedly low 9.4 percent. But if the fourth quarter GDP report is indeed a harbinger of a real pickup in economic activity, maybe we’ll have stronger jobs reports in coming months.

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