South-Western College Publishing - Economics  
A Good Report on 2004 GDP
Subject Economic Growth
Topic Productivity and Growth
Key Words

Economic Growth and Employment

News Story

Gross domestic product increased in the final quarter of 2004, according to the U.S. Commerce Department’s latest figures. In the final October to December period, economic growth as measured by GDP, clipped along at a respectable 3.1 percent, still less than some economist were predicting and less than the 4.0 percent recorded for the previous quarter.

Nevertheless, the entire twelve-month 2004 period posted an impressive 4.4 percent growth rate. That is up from the 3.0 percent posted in 2003 and the best since 1999, when the economy grew at 4.5 percent.

Both the household sector and the business sector spent briskly in 2004. Orders for durable goods--those goods expected to last three years or more--increased by a solid 11 percent last year. Spending on durables was up 0.6 percent in December and 1.8 percent the month before. Households and businesses both spent more on computers and related equipment, with demand rising 6.4 percent for the year in this category alone.

All the news is not good, though, as the rebound in durable goods orders created more profit for manufacturing companies but did not significantly increase employment. Since July of 2000, 2.9 million factory jobs have been lost to lower-wage paying countries. The past year created 76,000 jobs in manufacturing, but did not come close to replacing those jobs previously lost through layoffs during periods of slack demand.

Companies have been able to increase production to meet the growing demand for products through increased productivity and have not rehired previously laid-off workers or created many new jobs.

Questions
1. Research the notion of per capita GDP as another way to measure economic growth. Discuss why per-capita GDP is a better or worse measure of economic growth than simple GDP overall.
2. Draw a production possibilities curve diagram and explain how to represent recent economic growth in the diagram.
3. Use the same diagram drawn for #2 to show how unemployment fits into the discussion of a production possibilities curve.
Source The Associated Press, “Economy Slowed in 4 th Quarter, U.S. Report Says”, The New York Times Online, January 28, 2005 and The Associated Press, “Durable Goods Orders Rise, but Not Jobs”, The New York Times Online, January 28, 2005.

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