Montesi: What can we expect from the national economy and the recovery? Where are we in the cycle?
Linneman: Basically 2% a year. GDP, we are basically adding about 2.2 million jobs a year. That puts GDP at an all-time high, both in absolute terms and in per capita. That is to say, real GDP has grown more than the population since the previous peak. However, in terms of jobs, we are at about 99% of the jobs we lost. From a labor market point of view, we are back to our previous high, but we have added a lot of people in the intervening six years, and that is why the unemployment rate is still high, even though a lot of people have dropped out of the labor force.
If you said we are in the fifth year of a recovery, that typically means we are in the sixth inning. I think we are in about the fourth inning. The reason I say this is, you have gotten ahead on a GDP basis by a percent or two per capita, and when you have got all your lost jobs back, you are normally only in the second year of a recovery; that would suggest you still have five or six years to go. A normal recession and recovery lasts seven or eight years, suggesting we are in the latter, not late innings. However, normally when you recover to previous job highs, and just getting a new per capita GDP high, you’re really in about the second year. Also, we are about $2 trillion below long-term GDP trend. Long term trend is nothing more than 2% productivity, 1% population. This is not anything new or complicated. About 80% of that $2 trillion is nothing more than forestalled housing and auto markets.