First year of U.S. economic recovery was weaker than estimated

July 27 (Bloomberg) -- The first year of the recovery from the worst U.S. recession in the post-World War II era was even weaker than previously estimated, evidence of the extent of the damage wreaked by the economic slump, revised figures show.

Gross domestic product grew 2.5 percent in the 12 months after the contraction ended in June 2009, compared with the 3.3 percent gain previously reported, the Commerce Department said today in Washington. The government also revised down corporate profits and personal income for each of the past three years.

The update did little to change the contour of the recession or the rebound that followed even as the magnitude of movements shifted. The report also showed the world’s largest economy expanded at a 1.5 percent annual rate in the second quarter, down from a 2 percent rate in the first three months of the year.

The revisions “are not going to shape the story about the recession or subsequent expansion,” Brent Moulton, associate director for national economic accounts at the Commerce Department’s Bureau of Economic Analysis, told reporters this week.

The figures showed the economy grew 5.8 percent from the second quarter of 2009 through last year’s fourth quarter, 0.4 percentage point less than the 6.2 percent gain previously reported. The reduction was paced by lowered estimates for the strength of the rebound in business investment in things like equipment and computer software.

Okun’s Law

The shallower recovery deepens the mystery of the breakdown of Okun’s Law, named for late Yale University professor Arthur Okun, which describes a statistical relationship between GDP growth and changes in the jobless rate.

The rule of thumb holds that for every percentage point that year-over-year growth exceeds the trend rate -- which Federal Reserve policy makers peg at between 2.3 percent and 2.6 percent -- unemployment drops by 0.5 percentage point.

The jobless rate fell 1 percentage point, going from 9.5 percent in June 2009 to 8.5 percent in December 2011, even as GDP grew at an average 2.3 percent annual rate.

Fed Chairman Ben S. Bernanke is among those who have taken note of the disparity, saying in a March 26 speech that improving jobs numbers “seem somewhat out of sync with the overall pace of the economic expansion.”

The revisions also pushed back the period when the economy moved from recovery to expansion, which is the point at which the volume of all goods and services produced exceeded the pre- recession peak. It now began in the fourth quarter of last year, rather than in the prior three months.

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