Earlier this week, talking to a group of bankers, Fed Chairman Ben Bernanke said essentially there was good news and bad news about the economy. The bad news was that the economic recovery had been slower than he and others expected. The good news: that’s about end. Bernanke predicted economic growth will pick up. The second half of the year, he said, will be better than the first.
On first glance, that doesn’t seem like it would be hard. The first half of this year has been a real disappointment. GDP grew just 1.8%, far less than you would expect during the early part, we hope, of an economic recovery. And last month’s dismal jobs report suggests that the economy has slowed even more in the second quarter of the year.
What’s more, it seems that most economic forecasters agree with Bernanke. On average, economists believe that the US economy will grow 3.5% in the second half of the year, which would be a huge acceleration from the first quarter. How likely is that? Not likely. History suggests that the second half of the year is likely to disappoint as well. Here’s why:
I took a look at gross domestic product quarterly growth rates going back to 1948, which was as long as the Bureau of Economic Analysis had them. Even after taking out seasonality, economic growth tends to be faster in the first half of the year than the second half, by a significant amount – 20%. During the past 62 years, the GDP has risen on average 3.6% in the first half of the year. That compares to a growth rate of just 3% in the second half of the year. And again, that is after seasonal factors like the summer and Christmas are taken out. Factor in seasonal factors and the difference is probably even bigger.
On a year by year basis, the race is closer. In the past 62 years, the economy has grown faster in the first half of the year 54% of the time. So the first half gets it, but not by much.
Still, the second half of this year could be stronger than the first half. And there is good reason to think it will. Economists cite the Japanese earthquake, the tornadoes and flooding in the US, and higher gas prices all as reasons that the economy was slower in the first half and all as things that might soon go away (gas prices are already falling).
But for the economy in the second half to not disappoint, it wouldn’t have to only grow faster. It would have to significantly improve. That 3.5% growth rate is nearly double the rate at which the economy grew in the first half of the year. That has happened just 13 times in the past 62 years, or just over 20% of the time. Again, it could happen. But policy makers seem to be banking on a faster second half. Indeed, Obama and his team say that may push for more stimulus if the second half is weak. History suggests Obama and his team should start getting ready to push.