Much was made of the 3.5% annualized GDP growth that was reported this week. The Bush-Blamer-In-Chief stated that the figures were “an affirmation that this recession is abating and showed the steps we’ve taken have made a difference”. Really? Have they made a “difference”? Have they accomplished anything that will last beyond the massive amount of American taxpayer money that has been thrown at the problem? Let’s look at the numbers.
Of the 3.5% gain, over 2% of the gain was due to durable goods – and most of that was automobile sales, buoyed primarily by the now-ended “Cash for Clunkers” program. Without this gain, the GDP would have increased at a much lower rate of around 1.9%. What about future auto sales? In September, sales plummeted as the C4C program sucked away sales that would have occurred later. Also, Edmunds.com reported that the overwhelming majority of these car sales would have occurred anyway, so the actual cost of the 125,000 additional vehicles that can be credited to C4C was closer to $24,000 per vehicle, rather than the $4000 average rebate. Of course the Obama administration didn’t appreciate Edmunds calling their baby ugly, so they became an official member of the White House Enemies List.
Now if the durable goods numbers were a bit inflated by governmental kickbacks, surely the housing numbers were positive. After all, spending on housing-related products jumped over 22%. But – most of the housing gains appear to be caused by homebuilders who were in a hurry to finish homes before the end of the government’s $8000 first-time homebuyer rebate. What happens to new home construction and sales after the rebate expires? Without money in consumers’ pockets, most likely the same thing that happened to car sales after the end of C4C – plummet.
The vast majority of economists responded to this week’s news with skepticism and questions about how such gains can be sustained without programs like C4C and the homebuyer rebates. One economist stated:
…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.”
Fiscal steroids, indeed. The organic growth is precisely what is missing from this GDP report. Other than a healthy increase in exports, the non-steroidal numbers are decidedly anemic.
This week Rush Limbaugh described the relationship between the “stimulus” program and the GDP this way (apologies to Rush for my paraphrase) – it’s like having someone go to the bank and get a $10,000 loan, and then go home and tell their wife “Hey, look! I just got a $10,000 raise!!”. Most of the gains shown in the GDP are not real gains – they are government spending that is passing in one end of the economy and out the other. It’s the economic equivalent of check kiting – we’re writing a check out of one account to pay off another account. Problem: that money will have to be paid back some day. It is not generated wealth – it is debt, and the Chicomms will eventually come knocking to get their money back, along with interest.
And speaking of interest – it is another problem knocking at the door. The CBO projects that, due to the debt being piled up by the Obama deficits, interest payments will be the largest portion of the federal budget by 2075
Incredible. And that doesn’t even include Obamacare.
It was fairly obvious all along that the Keynesian approach to “stimulus” being pursued by the Obama administration would result in such numbers, as you don’t inject tens of billions into an economy without it showing up somewhere. But the GDP growth is not showing organic growth being driven by the economic engine of the USA – consumer spending and private sector business growth. In fact, the market response to the GDP report on Thursday was quickly reversed when the spending reports emerged on Friday.
So, despite a rosy-looking 3Q GDP, the situation boils down to low-quality results. One analyst reports:
John Williams notes that one-time stimulus or inventory items represented 92% of the reported quarterly growth. The nature of the stimulus-related gains was that they tended to steal business activity from the future. The months ahead are the future. Accordingly, fourth-quarter quarterly GDP change will likely turn negative, again. (The King Report)
And the WSJ summarizes it well:
Fully 2.2 percentage points of the third quarter’s 3.5% growth figure related to vehicle purchases and residential construction, both juiced by government support. Federal spending added 0.6%.
If these GDP data were company earnings, they would be what analysts euphemistically call “low quality.”
That low-quality growth is growth in government. It is economic “empty calories”.
Oh, and remember leftists – you designated > 3% growth under George W. Bush as a recession. Wanna reconsider that?