3rd Quarter GDP Up, Erosion in Underlying Economy Continues

Thursday the government reported that GDP rose at an annual rate of 3.5% in the third quarter, rising from an annual rate of $12.901.5 trillion in the 2nd quarter to $13.014 trillion in the 3rd quarter.  (Expressed in 2005 dollars.)  The government would have us believe that this is great cause for cheer – evidence of a rebounding economy and the end of recession.

But how much of this is real growth versus the illusion of growth created by government stimulus spending?  In March the government passed the American Recovery and Reinvestment Act, authorizing the spending of $787 billion to boost the economy.  Proof that it’s actually stimulating the economy would be an increase in GDP if the stimulus spending is removed.

The fact is that the underlying economy continues to deteriorate.  As I reported in Stimulus Spending Masks Huge Decline in 2nd Qtr. GDP, the underlying economy contracted at an annual rate of 8.2% in the 2nd quarter.  In the 3rd quarter, stimulus spending increased to $113 billion, for an annual rate of $452 billion.  If this spending is removed from 3rd quarter GDP, we find that the underlying economy has continued deteriorating, albeit at a slower pace, at an annual rate of 3.5%.  Without the stimulus spending, 3rd quarter GDP would be 7.5% below the peak GDP reached in the 2nd quarter of 2008.  (It should be noted that that figure was also “stimulus-aided,” the result of the Bush administration $150 billion tax rebates.)

Making matters worse, real per capita GDP (sans stimulus spending) fell to its lowest level since 3rd quarter 2003, with the addition of another 300,000 people to the U.S. population contributing to the decline.

This is why some political leaders, economists and financial pundits are raising alarm over the possibility of  backsliding into recession once the government stimulus is removed – because the underlying economy continues to deteriorate, and not at a slow pace.  It’s likely that the government will enact new stimulus measures to sustain the illusion of economic growth, but at the risk of record deficits alarming the financial community in a way that will send interest rates soaring, countering any stimulus measure.  It would be amusing to watch such idiotic economic policy play out were it not for the devastating effects on the vast majority of Americans.

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5 Responses to 3rd Quarter GDP Up, Erosion in Underlying Economy Continues

  1. Mark Hall says:

    It was announced today that more than 650,000 jobs have been saved or created under President Obama’s economic stimulus plan and that they are on track to reach the president’s goal of 3.5 million jobs by the end of next year.

    Although saving jobs is important, the “saving” and “creating” MUST BE clearly separated if we are to have a clearer understanding of the overall success of our economic policy.

    In consideration of the current U.S. unemployment numbers and the required growth in jobs to accommodate population growth, in addition to saving jobs, the president’s NEW REVISED GOAL should be to “CREATE” 10-12 million jobs in the next two years.

    Any hopes to accomplish this will REQUIRE paradigm shifts in domestic trade policy, domestic immigration policy and domestic illegal migrant worker policy.

    Is the administration willing to take these actions?

    or

    Can we expect more of the same (Bush Economics)?

    • Pete Murphy says:

      Exactly right, Mark. We do need 10-12 million jobs. And there’s no way we’ll ever get there without restoring a balance of trade. And there’s no way that will happen without tariffs.

      Regarding the “Bush economics” comment, it’s the same economics – blind faith in “free” trade – that has been practiced by every administration since the signing of GATT in 1947.

  2. Mark Hall says:

    The accountant side of me normally does not favor spreading fixed costs evenly over all products or services.

    However, spreading the 35% Chinese Tire Tariff over ALL Chinese products sounds like a GREAT IDEA!

    That ought to STIMULATE domestic job growth!

  3. […] together with GDP data (see “3rd Quarter GDP Up, Erosion in Underlying Economy Continues“), the evidence is clear that the government stimulus program, while propping up the economy, […]

  4. […] This is very bad news for America’s economy and helps explain why the GDP of the underlying economy (with stimulus spending factored out) continues to decline at a frightening clip.  (See https://petemurphy.wordpress.com/2009/10/30/3rd-quarter-gdp-up-erosion-in-underlying-economy-continue…) […]

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