Thursday, October 29, 2009

Out of the Shade?

The BEA's preliminary estimate is that real GDP grew at a 3.5% annual rate in the third quarter (July - Sept.). At some point in the future, the NBER will call the business cycle trough retrospectively, but it looks like, once they do, we will say that we emerged from the shaded area in mid-2009: However, the red line indicates continuing violation of "Okun's law," the rule of thumb which implies that 3.5% growth should give us rising employment (the unemployment rate increased from 9.5% in June to 9.8% in September).

The BEA's release suggests that we can attribute the growth largely to
  • "Cash for Clunkers":
    Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP
    Real personal consumption expenditures increased 3.4 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. Durable goods increased 22.3 percent, in contrast to a decrease of 5.6 percent. The third-quarter increase largely reflected motor vehicle purchases under the Consumer Assistance to Recycle and Save Act of 2009
  • Federal Government:
    Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second. National defense increased 8.4 percent, compared with an increase of 14.0 percent. Nondefense increased 6.8 percent, compared with an increase of 6.1 percent.
  • Inventory Re-stocking:
    The change in real private inventories added 0.94 percentage point to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change... Real final sales of domestic product -- GDP less change in private inventories -- increased 2.5 percent in the third quarter, compared with an increase of 0.7 percent in the second.
  • Housing (!):
    Real residential fixed investment increased 23.4 percent
    (which may have something to do with the first-time homebuyer tax credit, not to mention the Fed's efforts to keep mortgage rates low)
A hopeful sign is that investment in equipment and software increased, but ever so slightly (1.1%). A decrease in investment in nonresidential structures led to an overall negative number for nonresidential fixed investment.

The "rebalancing" of the economy took a pause: exports grew (14.7%), but imports grew still faster (16.2%).

Also, state and local government expenditures fell 1.1%; a further indication that states' inability to run deficits is acting as a counter-stimulus (Washington: send more money).

Overall, while the headline number suggests we're moving out of the shade, it is hard to say we've really emerged into the light until we see businesses confident enough to invest more robustly and hire workers as well as less reliance on federal efforts to prop up demand.

For more, see the Times story, and the roundup of "economist" reactions at Economix.

Update: Oops. I misinterpreted what was going on with inventories. Inventories continued to decline, but at a decreasing rate, hence the positive contribution to GDP growth (inventories declined by $130.8 bn in Q3, vs. $160.2 bn in Q2). That actually makes the picture look a bit better for the future as it means firms are not piling up inventories, which might lead them to cut back production.

Free Exchange has thoughts from Robert Gordon and Real Time Economics has more "economist" reaction.

1 comment:

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