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When Economic History Improves With Time

The rates of US economic growth and especially personal saving have been higher than previously believed, according to revised data from the Bureau of Economic Analysis. But it's not all good news, because the largest economic imbalances remain unchanged.

CAMBRIDGE – Seldom does a dense report from a statistical agency take your breath away, but the latest publication on the United States’ national income accounts from the Bureau of Economic Analysis (BEA) is the exception that proves the rule. The publication, after all, is the BEA’s comprehensive, bottom-up quinquennial reassessment of income, output, and prices going back to the Model-T days of economic activity.

Wading into the review’s details, one finds a slightly improved outlook for medium-term growth. Moreover, the data on personal saving suggest somewhat fewer vulnerabilities and more resilience in the household sector. On the other hand, the review changes nothing concerning the two yawning holes – the twin fiscal and external deficits – in the national accounts.

The report requires economists to revise our view of the US economy. First, two bits of good news. In addition to reporting that real GDP increased at a 4.1% annual rate in the second quarter of this year, output in the first quarter was revised upward somewhat, and this was preceded by considerably more income growth. The net effect does not change the big picture – the US still took six years to dig its way out of the Great Recession – but the growth trend (averaging output and income, which is a more reliable measure of activity than either alone) was faster than previously believed. This is significant because, thanks to compounding, small increases in a growth rate produce large benefits down the road.