Lousy Economic Recovery? Doesn't Feel Like It

The 1.7 percent increase in gross domestic product for the second quarter shows a U.S. economy that’s plodding along. The job market looks much stronger, so there’s obviously a disconnect. Many economists are betting the labor figures right now are more accurate, while gross domestic product is understated for a host of reasons and will eventually catch up. “The employment numbers are closer to the true picture,” says Harm Bandholz, chief U.S. economist at UniCredit Group and the top payroll forecaster in the past two years, according to data compiled by Bloomberg. “I’m confident GDP growth will pick up in the second half and even more in 2014.”

Payrolls climbed 202,000 a month on average from January through June, up from 180,000 in the second half of 2012, according to Department of Labor data. Bandholz and other economists say such gains typically come with an economy growing at close to 3 percent. Government figures show that for the first two quarters, growth averaged 1.4 percent. Two reasons behind the weak GDP growth in the first half were the drag from federal cutbacks and an increase in payroll taxes that lowered take-home pay.