Last week, I noted that real gross domestic product on a year-over-year basis has been growing around 2% to 2.5% since Q1 2010. That's subpar. It was up 2.5% year over year during the third quarter of 2012. On the other hand, real output of non-farm business was up 3.5% during Q3, and has been hovering around 3% to 3.5% over the same period. Nearly all of the difference can be accounted for by the weakness in government spending.
That's not a bad development from my perspective. The so-called new normal is actually a combination of abnormally weak government spending on goods and services and relatively normal activity in the private sector. Remove the government, and the economy looks like the "old normal"!
The growth in non-farm business output since mid-2010 has been driven by relatively stable growth of about 2% in total hours worked in the non-farm business sector and solid gains in productivity. That's all good from my perspective.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.
