GDP up 3.5% – the recession is technically over

This morning markets are reacting to the news the U.S. economy grew last quarter at a slightly higher rate than expected. Economists had indicated the 3rd quarter would report growth, but they were looking at 3% to 3.2%. This morning’s number popped in at 3.5%. It’s a good number confirming the relief that some are already feeling in this economy.

Retail sales and unemployment are still a problem and will lag in showing improvement.

Our on again off again administration will champion past stimulus spending as the reason for the improvement. Humbug. Time was the reason for the improvement. And just wait, as soon as they want to ram more redistribution of your assets through congress, the word on The Hill will be the stimulus didn’t do much.

Yes, J Strupp, I know, we’re headed for a double dip and the only way to save us is to spend about $500 billion more. (You are somewhat predictable, you know.)

Comments

  1. Hmmm, yet the price of gold jumped $17 from yesterday’s price on that good news?

  2. That would be called a worry of inflation. The fed’s going to miss this one. I feel it. I’ve invested accordingly.

  3. J. Strupp says:

    $500 billion won’t be enough but thanks for thinking of me.

    Estimated effects of ARRA on GDP are about 2-3% GDP in Q2 and about 3% in Q3. That means ARRA spending was the bulk of GDP growth in the last 6 months.

    We’ve issued hundreds of billion of treasuries over the past few months and the global economy has gobbled it up without a burp (as predicted). The 10-year hasn’t budged. Inflation is a non-issue and won’t be for years if at all.

  4. J. Strupp says:

    P.S. inflation in commodities is another story.

    I refer to core CPI in the last comment.

  5. J. Strupp says:

    ugh….hundreds of billions of dollars in treasuries.

  6. How can an increase in commodities not translate into an increase in CPI? We must have had vastly different economics training.

    All of those gobbled up treasuries have only served to keep the dollar trashed against certain Asian currencies. Americans should remember to whom we are selling the farm.

  7. No problem. Is the “edit comment” feature still working for you guys? I might need to increase the time a bit…

  8. Well, as starters, core CPI excludes increases gas prices.

    As a quick example of my point about commodities, the Chinese use their massive account surplus to stockpile huge quantities of copper, iron ore, platinum, etc., therefor boosting commodities prices for certain raw materials…..but the end product doesn’t translate into higher consumer prices because of the lack of global demand on the other end.

    Your statement regarding the dollar being “trashed” against the Yuan makes no sense. It’s quite the opposite actually. The Chinese buy up U.S. treasuries in order to make sure that the dollar is NOT “trashed” in relation to the Yuan. If the Chinese decide to stop buying our treasuries (which will happen sooner rather than later), this will be a good thing for us anyway. A weak, or in your words, “trashed” dollar is necessary at this time. If the Chinese stop buying our treasuries, that means they are allowing the Yuan to float vs, the dollar, therefor, devaluing the dollar, boosting American exports and doing considerable damage to China’s export driven economy in the process. The PRC has already figured out that pegging the yuan to the dollar makes no sense anyway because the American consumer is not coming back to the good ol’ days of 2007. Stimulating domestic consumption is a better answer because it means they don’t need to rely on currency manipulation and the American consumer as the buyer of last resort to grow their economy.

    In general, this shift in the “new world” order” will benefit both sides.

  9. Randy in Richmond says:

    Yes Cindy, I would like it if you could increase the ‘edit’ time.

    Part of the bump in the econommy is due to the Cash for Clunkers injection into the auto industry. However, October sales are proportionally down, as many predicted, and may offset in this quarter. But any good news is appreciated.

  10. J. Strupp says:

    The good news for you Randy is that Obama could very well lose his job in 3 years since his stimulus package isn’t near big enough to get us back to anything close to full employment.

    Below is a quick overview of the ARRA and government incentive programs’ impact on GDP growth from EPI.

    http://www.epi.org/publications/entry/ib265/

    Keep in mind that 3.5% GDP growth is pretty bad compared to other recession recoveries of this magnitude and the fact that almost all of that growth (about 2%) was from ARRA and government incentive programs (something that will begin to fall off into 2010).

    In short, the undersized ARRA (and big bad government) is keeping us on life support but not big enough to reduce the unemployment rate to a more acceptable level.

  11. Since the employment rate is expected to rise, will this be one of those jobless recoveries we heard about so much in past years?

  12. In general, it takes a significant jump in GDP growth just to move the unemployment rate down a couple of percentage points. (google Okun’s Law if you really want to bore yourself). 3.5% GDP growth in good times is solid growth. In times like these, it’s not enough to make any significant impact on the high rate of unemployment. Coming out the recessions of mid 70’s and early 80’s, the American economy got this huge increase in growth (almost 10%) which caused the employment to snap back quickly. The recessions since 1982 haven’t done this, which is where the term “jobless recovery” comes from.

    Considering that we are at almost 10% unemployment, we’ll need to grow at least twice the rate we are right now just to get the unemployment rate back down to a reasonable number.

    If the trend of the last few recessions holds true, we are in for the mother of all jobless recoveries.

    BTW, THIS is why stimulus matters.

  13. But what are we stimulating?

  14. J. Strupp says:

    Aggregate demand that wouldn’t, otherwise, exist without stimulus spending.

    Infrastructure investment, extended unemployment insurance, backstopping state budget shortfalls all lead to increasing aggregate demand through maintaining the same employment levels which would have otherwise collapsed without stimulus dollars, direct job creation through infrastructure investment, and/or extending benefits that will redeployed stimulus dollars back into the economy in short order.

    A strong case can be made as to whether or not we’re allocating stimulus dollars in the most effecient manner (i.e. the heavy use of less effective tax cuts in the package), but for some to assume that government spending is ineffective on its face is not really a rational argument.