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August Economic Data Defies Double-Dip Consensus

By Daniel Gross

Did the failed strike by Verizon employees help contribute to a massive outburst of economic pessimism? The nice, round, pathetic "0" of net payroll job creation in last Friday's August jobs report added fuel to the argument that the U.S. is headed for another recession — if it's not in one already.

But the jobs report, while awful, wasn't quite as pathetic as it seemed. The 45,000 Verizon workers who went out on strike in early August were counted as job losses, even though they came back on the job in late August. Factoring them in, the private sector created 62,000 jobs in August, not 17,000. That's still terrible, but it does not, in and of itself, suggest an imminent return to recession. You can have economic expansion without jobs growth, but it's extremely rare to have private sector jobs growth without economic expansion.*

But surely things were so awful in August—what with the debt ceiling debacle, the S&P downgrade, the Europe-inspired market volatility and the natural disasters — that the economy ground to a halt. It sure felt that way. But, as Henry Blodget and I discuss in the accompanying video, the numbers we have to work with indicate that the economy was growing in July and August, and at a faster rate than it was in the spring.

Data on retail sales and car sales for August, as I noted, were positive. The ISM manufacturing report, released on September 1, indicated that the goods sector of the economy was still expanding in August, although new orders slowed. The ISM services report, released yesterday, showed the vast services sector gained strength in August, with new orders rising. Macroeconomic Advisers, the non-partisan, highly trustworthy, reality-based forecasting firm, continually updates its projection for current quarter GDP growth based on new data coming in. The current estimate: the U.S. economy is expanding at an annual rate of about two percent. For those keeping score at home, that's twice the rate of second quarter growth, and five times the rate of first quarter growth. Of course, these assessments can change rapidly, and horrific numbers from September could signal a slowdown. Or they could reaffirm the existing trend. We'll know in about a month.

This is not to say that things are good, by any measure. Given population growth, an economy growing at less than two percent may feel like a per capita recession. The U.S. economy is not growing rapidly enough to absorb new workers and make people feel like the pie is expanding.

But the question as to whether the U.S. is in recession or growing isn't merely a semantic one, or even a political one. There's a big difference between two percent growth and zero percent growth — in the U.S., that difference amounts to about $300 billion a year in economic activity.

Daniel Gross is economics editor at Yahoo! Finance

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm

*What's more, it is always dangerous to draw any conclusion — positive or negative 00 on the economy based on a single jobs report. With a base of 131 million payroll jobs, the statistical difference between up 100,000 or flat is negligible. That's .00076 percent. It's like the difference of temperature between 95 and 94.9278.