Meltdown 101: Why did GDP Rise — and Will it Last?

Chattanooga Publishing Company ^ | Oct. 30, 2009 | By MARTIN CRUTSINGER

[Son House]

Here is a look at the key components of GDP, showing how much each one contributed or subtracted from growth in the third quarter, along with forecasts for how they will perform going forward.

CONSUMER SPENDING

HOW MUCH IT GREW: 3.4 percent rate in third quarter, best showing since early 2007.

CONTRIBUTION TO OVERALL GDP: 2.36 percentage points of the 3.5 percent third-quarter growth in GDP came from consumer spending. Car sales alone represented 1 percentage point of total growth, reflecting the success of the government’s Cash for Clunkers program.

PROSPECTS: This is the biggest question facing the fledgling recovery, given that consumer spending represents 70 percent of total economic activity. Can consumers keep spending with unemployment at a 26-year high of 9.8 percent and expected to keep rising until next summer?

Economists are split. Some think the end of the Cash for Clunkers program in late August and the waning impact of various one-time tax cuts and individual payments from the $787 billion stimulus program will send consumer spending back into negative territory. That would represent a big blow to prospects for recovery.

Other analysts believe there is enough momentum that consumer spending will keep growing in the months ahead, just not as rapidly as in the third quarter.

PRIVATE INVESTMENT

HOW MUCH IT GREW: 11.5 percent rate in third quarter, after declining for seven consecutive quarters.

CONTRIBUTION TO OVERALL GDP: 1.22 percentage points of the 3.5 percent GDP growth came from investment, with nearly half that strength coming from a surge in residential construction, an area that had been plunging since 2006. Business spending on computers and other equipment showed gains but spending on commercial structures such as office buildings and shopping centers continued to decline.

PROSPECTS: Economists believe commercial real estate will continue to suffer, given high office vacancy rates and the difficulty developers are having getting new financing because of rising loan defaults on commercial mortgages. Housing is expected to keep rising, a forecast that is based in part on the expectation that Congress will extend and expand the current $8,000 tax credit for first-time home buyers, which is scheduled to expire on Nov. 30.

Another potentially good sign for economic growth: Businesses are expected to begin rebuilding inventories that have been drawn down sharply during the recession.

TRADE

INCREASE IN DEFICIT: Widened by $17.9 billion in third quarter compared to second quarter.

CONTRIBUTION TO OVERALL GDP: Reduced GDP by 0.53 percentage points in third quarter.

PROSPECTS: Economists believe that trade, which had been one of the few areas of strength in the past year, will be basically neutral in the coming quarters as the growth in exports will be offset by gains in imports. The gains in exports, however, are expected to help certain industries.

GOVERNMENT SPENDING

HOW MUCH IT GREW: 2.3 percent rate in third quarter, slowing from 6.3 percent growth rate in second quarter.

CONTRIBUTION TO OVERALL GDP: 0.48 percentage points of GDP growth in third quarter came from the increase in government spending.

PROSPECTS: All the strength in third-quarter government spending came from a 7.9 percent rise in spending at the federal level, reflecting in part the boost from the stimulus program. That offset a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession. The expectation is that the stimulus program, which is helping states weather the recession, will keep government spending growing in coming quarters.

[Son House]

a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession.

^^Lack of private sector growth due to the impending doom of the 111th United States Congress and fully expected tax increases inherit with Democrat Majorities

It's funny how the whole world seems to fall for the rumor of an improving US economy

[rlmorel]

I swear I don’t get this. (Actually, I do...the media and the administration are both in bed with each other and both fishing desperately for good news to advance liberal agendas)

People are crazy if they think that runaway spending (never seen before in history like this) coupled with ever increasing taxes and the demonization of capitalism and business is going to result in a robust economy. This is like a victim of an awful, inevitably fatal disease who wakes up one morning with clear eyes and an appetite. It isn’t going to change the outcome. We are going to see massive inflation, like we have never seen in this country, ever.

I just finished listening to the section about the Depression in “A Patriot’s History of The United States” (excellent, EXCELLENT book by our very own freeper LS) where he discusses the actions of FDR in dealing with the depression. Nearly every single thing he did only exacerbated the depression and prevented the recovery, and everything was done with an eye towards providing goodies to voters in order to cement a political base far into the future.

LS wrote this before Obama was President, but the parallels just scare the crap out of me. Obama is obviously patterning his actions after those of Roosevelt, practicing Keynesian economics on steroids. When it is seen how much damage they did to our country as practiced by Roosevelt and the Democrats (Social Security IS a Ponzi scheme, and just one example of everything that is wrong with our country since Roosevelt took office) you can see how they are poised to transform our country so that it will be just as unrecognizable to people 80 years from now in the same way our country would be unrecognizable to pre-depression Americans.

We are in serious trouble.

[Son House]

Well one good thing is all that Keynesian liquidity isn’t being borrowed

[jwparkerjr]

I like to understand things by trying to find something in my personal experience or knowledge with which to illustrate them. In this case I would compare the US to a family. A family that rode the crest of the easy credit wave and got a dozen or so credit cards. Life was good. Vacations, private school for the kids, a ski boat, great wardrobes, the neighborhood's biggest big screen tv, a heated pool, the list goes on and on. Their monthly outgo was staggering, but their monthly income was up to the challenge. He worked, she worked and life was great. Then one day he found out he was unemployed! Oops! Life has taken a turn for the worse. In a month or two they are really hurting. The one remaining income can hardly cover the basic costs of life, shelter, food and utilities. Nothing left for all the other bills. What to do. But wait! A solution is found in getting a home equity loan to cover all those bills. Life is good again. Until they fall back into the behavior that got them in trouble to start with. Outgo is back to pre-crisis days, but income is still at half-level. I'm sure you know the rest of the story. It's not long until they've maxed out the credit cards again, but this time there's no where to go for relief. The MSM presents them as victims of the down economy. Foreclosure staring them in the face, unable to afford private school or pay or insurance, and suddenly right back where they were.

And that's where we as a country are about to find ourselves. We spent every penny of our income and when it wasn't enough we went into debt. When that caught up with us, we passed the stimulus bills. But unlike our family the feds have a money tree growing in the back yard. So it's going to be a double whammy for the country. Huge debt load and much too much unbacked money being poured into the system. For the family it's like the other job went away too.

It's depressing just to go through it to explain the example. Imagine how it will be when it's the real thing. And that time is unavoidable and getting pretty close.

[Travis McGee]

This GDP spurt is as “real” as a kid’s candy high.

[Freddd]

Even Bill Oreilly admitted, because Glenn Beck was about to bust the gig, admitted that it was just a ‘psychological factor’.........

As if we hadn’t already figured that out...

No we are not to be treated as adults in the U.S. Obama has to treat us like patients!

[Lee'sGhost]

Heard Beck or someone on his show use a similar analogy. Paraphrasing: So, you go out and get a loan for $10,000. Then you go home and tell your wife that your income increased by $10,000 that month. That’s what we have here. GDP looks good because it is being pumped up with borrowed money. The bill will come due soon.

Can somebody please tell a neophyte like me where to invest money to make money when you know the economy is about to crash?

[GWB00]

I am too lazy to do it, but somebody find a graph of GDP growth in Venezuela for the last nine years. It has been mostly positive (up until recently) and at times unbelievably strong. However, it was due to Chavez taking oil money & pouring into the streets.

We are doing the same, but instead of oil, we are using a printing press.

All the other parallels are the same, nationalizing companies, taking from the rich, censoring opposition.

If one wants to look at America in 10 years under Obama, just take a 3 hour plane trip south of Miami to see the results.

[mad_as_he$$]

Invest in ammo, booze, medicines, food, energy (store fuel and propane), buy some silver bars(forget gold way out of control),toilet paper, camping gear, small trinkets, tobacco and feminine hygiene items.

[rlmorel]

This is disturbing. I admit to feeling like there isn’t much more that I can do other than just going along for the ride and watching how this unfolds.

I mean, I went to Washington, done tea parties, gone to the town hall meetings, but...it feels like a supertanker slowing down or turning.