The first estimate on 3rd qtr 2009 GDP for the US is out from the Bureau of Economic Analysis via News Release: Gross Domestic Product. First glance it looks lovely – 3.5% growth after we’ve down for so long. But looks can be deceiving and this is Halloween season. One reason to be cautious is that this is the “flash estimate” – much of the estimate is based on other, model-driven estimates, not necessarily on hard data collected about the economy. We’ll know better next month when it’s revised and even better in December when the “final” comes out.
But even if we take the numbers at face value, we need to realize there’s a lot of makeup making that face look pretty. A closer examination reveals:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.5 percent in the third quarter of 2009, that is, from the second quarter to the third quarter, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.
The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency see the box on page 5. The “second” estimate for the third quarter, based on more complete data, will be released on November 24, 2009.
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures PCE, exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private inventory investment, in exports, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.
Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. [emphasis added]
That’s right. Without the cash-for-clunkers program, the GDP rises 1.8% instead of 3.5%; half of the growth in 3rd quarter is due to cash-for-clunkers and that program is long gone. The next big boost was from inventory replenishment – businesses producing to re-stock the shelves after cutting back too much for the 2nd qtr. Inventory accumulation accounted for another 1.0 of the 3.5% in GDP growth. We can’t count on building inventories every quarter – maybe next qtr, but not after that.
This is the second “report card” on the big stimulus program launched by the federal gov last February. The first report card, 2nd qtr GDP, indicated that the stimulus spending & tax cuts had arrested the free-fall in GDP. This 3rd qtr report kind of affirms that judgement. The cash-for-clunkers program worked to create some growth but it’s short-term. The rest of the federal stimulus program is really just keeping us from falling further — it’s not really creating new growth. In particular, although federal government spending increased 8+% during the quarter, total government spending (federal + state + local) didn’t. The federal stimulus is having a hard time offsetting the huge declines in state-and-local gov spending. And, we know there’s more cuts in state-and-local coming, especially in places like California.
Offsetting the good news of GDP is the disappointing news on employment. We are still stuck at a level of new unemployment weekly claims that, while lower that it was last winter, is still higher than the peaks of the 2001 and 1991 recessions. We simply aren’t creating new jobs.