Related New Post, Oct. 30 — “A Reality-Based Look at 3Q09’s GDP (Plus IBD Update)”
So we’re finally here.
The government will shortly announce that the third quarter went positive, bringing an end to the recession as normal people define it.
As of Wednesday afternoon, Goldman Sachs was predicting that gross domestic product (GDP) growth for the third quarter would come in at an annualized 2.7%, ending a string of four straight quarters of contraction. The consensus of others, according to CNNMoney.com, was a positive 3.2%.
Whether it brings an end to the recession as determined by the National Bureau of Economic Research (NBER) is an open question. My guess is that it will. Based on the justifications NBER used to date its beginning of the recession in December 2007, it probably shouldn’t. After all, 768,000 seasonally adjusted jobs were lost during the quarter at a very consistent clip.
UPDATE: The number is an annualized +3.5%. In actual non-annualized terms, The POR (Pelosi-Obama-Reid) Economy’s 3.8% four-quarter dive has been partially offset by roughly 0.9%. That leaves us roughly 2.9% in the hole since the POR Economy began in June of last year. It’s a start; given the horrid employment situation and the size of the hill left to climb, hold the champagne, and even hold the beer.
UPDATE 2: It is encouraging that the GDP growth components are all positive, but sustainability is questionable. The personal consumption component (+2.36%) is the largest. I believe it was likely driven by increases in transfer payments such as food stamps, unemployment benefits, and Social Security. It certainly wasn’t stoked by increases in income for people still working, because that, as measured by average weekly earnings, is down 1.9% since December.
The private domestic investment component (+1.22%) went positive after three unprecedentedly awful quarters where it went down a non-annualized 4%. That it came back a non-annualized 0.3% after falling for so long (5.3% non-annualized over the past seven quarters) is more of a relief than a cause for joy. At some point, companies have to replace dying equipment, cars, computers, etc., whether they like it or not.
UPDATE 3: A sober-up — I realize that data collection wasn’t up to today’s levels, but a look at the 1930s tells us that positive GDP growth doesn’t end a recession (or in that case, depression) as people feel it. You’ll see that growth during the mid-1930s was great (assuming FDR wasn’t cooking the books), but persistently high unemployment lingered until World War II. In the 1930s, FDR created a high-wage, high-unemployment economy that grew. The POR Economy as seen right now in its formative “recovery” stage is shaping up to be a flat-wage (or worse), high-unemployment economy that somehow grows. We’re supposed to be impressed?
One thing such an economy does is play into the statist agenda, as you’ll see in the PJM column when it appears.
UPDATE 4: GDP-related quote of the day, from the BBC –
“It’s good to have the economy growing again,” said Brian Bethune, economist at IHS Global Insight.
“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.
“The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.”
It will be a surprise if this appears in a U.S. establishment media publication.
Mr. Bethune makes an excellent point that is reinforced when you look at the history previous recoveries.
In the six quarters that began in 1Q1983, the private investment component of GDP growth was huge (top set is total GDP growth, and the bottom is the private investment component):
You see the same thing but to a lesser degree from 3Q2003 to 4Q2004, which of course is because the Bush tax cuts were not as robust:
In this context, 3Q08′s private investment component of +1.22% in the first quarter of an alleged recovery is middling at best, and needs to come in much higher in future quarters if sustainable growth is to occur.