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December 5, 2014

When did the U.S. economy really recover to its pre-recession level?

If you go just by the nation's Gross Domestic Product (GDP), the answer is yes - after accounting for inflation, it recovered to its pre-recession peak back in the middle of 2011. Our first chart below, which also shows the values of GDP that our Modified Limo and Climbing Limo inertial forecasting methods have forecasted to be anywhere from three to nine months ahead of time, shows how real GDP was recorded in each quarter from 2006-Q1 to the present.

Real GDP vs Climbing Limo vs Modified Limo Forecasts, 2006Q1 - Present (2014-Q3, 2nd estimate)

In examining this chart, we see that real GDP recovered to its prerecession levels in mid-2011. The national income would then seem to have gone on to grow over a trillion dollars more beyond that $14,991 billion figure (in terms of constant 2009 U.S. dollars).

But as one of our readers noted in an e-mail: "A $13 trillion GDP with 300 million people is more than $14 trillion GDP with 320 million."

So how differently would the U.S.' economic recovery look if we measured it on a per capita basis rather than just on raw GDP?

To find out, we tapped the U.S. Census Bureau's intercensal population estimates and projections to calculate the Real GDP per Capita over the same period of time in our chart. And for the sake of consistency, we redid our forecasts using these measures. Our second chart presents our results.

Real GDP per Capita vs Climbing Limo vs Modified Limo Forecasts, 2006Q1 - Present (2014-Q3, 2nd estimate)

Going by this measure we see that it wasn't until the third quarter of 2013 that the U.S. economy really recovered to its pre-recession level. And then, it has only been since the second quarter of 2014 that it has grown beyond that level.

The interesting thing is that tracking the GDP per capita measure this way would more closely match the perceptions of the American people regarding the overall health of the U.S. economy. Say as measured by the University of Michigan's Consumer Sentiment Index, which returned to its prerecession levels just a few months ahead of real GDP per capita.

Contrary to what at least one particular economist and his fellow travelers might think about their cognitive abilities and financial literacy, regular Americans would seem to be pretty capable of collectively assessing the real condition of the U.S. economy.

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