GDP? Gee I don’t know.
November 3, 2009Jon Brooks Comments OffLast week’s positive GDP report got many people talking end of recession. But a glimpse at the economist blogs shows a more nuanced view:
From Econbrowser, written by two economics professors:
…The government sector made a smaller contribution than one might have thought given the fiscal stimulus, in part because lower state and local spending offset some of the increased federal spending. For a healthier long-run growth path I’d prefer to see business fixed investment and net exports adding rather than subtracting. But, compared with what we’ve been seeing recently, this overall is a quite welcome report.
But economist Tim Duy, on Seeking Alpha, points out the now-ended Cash for Clunkers’ contribution to GDP:
The more important question is what will be the durability and sustainability of the recovery in the years ahead? The GDP report raises some significant red flags when considering this question. The consumer spending number was clearly goosed by the Cash for Clunkers program and a much slower pace of inventory depletion than expected, which combined to add almost 2 percentage points to the headline figure. But auto sales have slipped back under the 10 million mark in September when the Clunkers program ended, with only a slight gain expected in October. And the slower inventory depletion suggests that firms are further along than expected in realigning stockpiles with demand, and that future improvement will need to stem from more significant improvements in underlying demand.
Professor Mark Thoma of Economist’s View argues for more stimulus:
With the news yesterday that output grew by 3.5% during the third quarter of this year, it appears we may finally be seeing the green shoots that signal the onset of the recovery. But what is driving the growth in output, what will it take to sustain that growth, and how long will it take to make up for the lost output and employment we experienced during the crisis?
A look beneath the growth numbers announced yesterday answers the first question. Increased consumer spending accounted for 2.4% of the 3.5% increase in growth, and much of the increase in consumption was driven by the Cash for Clunkers and other government stimulus programs. Today’s announcement that consumer spending fell by .5% in September now that the Cash for Clunkers program has ended raises serious questions about the sustainability of the growth we are seeing. Without further help from the government, which has clearly aided the economy despite what you may have heard from naysayers, will the private sector be able to sustain growth on its own?
…I believe that we need more stimuli right now to maintain the growth we are seeing, particularly given how far the recovery in employment lags behind the recovery in output…The need to at least maintain the stimulus we have, if not increase it, is enhanced by the fact that even though a 3.5% growth rate is far better than the negative rates we have seen recently, it’s not nearly enough to make up for the output we lost during the crisis in a reasonable amount of time. The recovery period from past recessions were associated with output growth rates of 6-7%, enough to resume the level of growth that existed before the crisis, and to make up for losses in a reasonable amount of time.
…The fact that growth is weaker than we need to fully recover losses in a reasonable amount of time, and the even slower recovery we are seeing in employment markets, indicates that the stimulus programs already in place are too small…
The signs are encouraging, and at some point the private sector will be able to sustain growth on its own, but it’s far too soon to declare victory.
The folks on Angry Bear off this bit of sarcasm:
(H)ow accurate (is) the polling was that came up with a consensous that the GDP rose 3.5% in the third quarter(?) I did my own poll last night at band practice and 100% of the self employed band members said they did not see it in their business.
I think this GDP rise, “we’re out of the recession” was just more of the inside the beltway pundit MSM happy talk. How else can you explain a 200 point rise in the Dow?
UPDATE:
I took another poll today. It’s of retail. It’s a poll of 1, but I think it’s significant. The results are good. Retail sales were up 5.3% for the 3rd quarter over the same time last year. WOW! I think I’ll buy stock in this company. Here’s how it broke out:July up 19.4%,
August down 14.2%,
September up 12.2%.
Six out of the last nine months were negative as compared to last year.Here’s how the money flowed:
Account sales down 11.8%,
American Express up 78.4%,
Cash down 3.2%,
Discover down 39%,
Visa/Master Card up 24.6%.And the Dow came back to reality today. At least for the moment.
