Earthside Comments: A generally accepted rule of thumb among economists is that a recession is underway upon two consecutive down quarters of GDP ... and/or a rise in unemployment of at least 1.5 percent over twelve months.
It follows then that the unbelievable one quarter jump in GDP, reported yesterday, a shoot-up of 3.5 percent does not, simply put, mean that happy days are here again. One quarter of GDP calculated upward is just one quarter and unemployment is still rising.
Of course, the truth is that the 2009, third quarter rise in GDP is very much figured from the massive deficit spending perpetrated by the federal government ... which is what 'stimulus' is supposed to do. But understand it for what it is or could be. 'Cash for Clunkers' and the $8,000 tax credit for first-time home buyers and borrowed money to rescue state governments is the biggest part of this GDP number. The hope is that this injection of money primes the pump and the private sector economy then will take off on its own from that 'stimulus'.
But it may not work or may not materially or substantively have much of an impact on the daily lives or businesses of average folks. Indeed, GDP like the stock markets, in our opinion, are not very good indicators of the short term condition of the economy. During the worst of the Great Depression, for instance, annual GDP was up ... it didn't mean that the slump was over.
So, despite the fervent happy talk of Obama sycophants and the CNBC crowd, the best approach for your own personal recovery or survival is to take the new GDP figure with a whole package of salt.
As we have noted before, there really isn't going to be a 'recovery' from this economic crisis that can be statistically seen until unemployment is down and until positive economic activity can be measured through increasing government revenues. It appears that we are still a long way from that.
Ultimately, because President Obama and the Dimocrat Congress are so timid and because the radical Republicans are so nihilistic and because the mega-transnational corporations really call all the shots -- the necessary restructuring of the economy to true sustainability means that the future remains quite grim. There will be ups and downs to be sure ... satisfying pent-up demand may occasionally provide the illusion of 'recovery'; nevertheless, massive government and private indebtedness, corporate greed and corruption, and our still rapacious consumerism are the elephants in the room that prevent real, genuine change.
The truth will preserve your capital.
U.S. consumer spending fell sharply in September after the government's cash-for-clunkers program ended, while after-tax incomes fell for the fourth month in a row, the Commerce Department estimated Friday.Real (inflation-adjusted) consumer spending dropped a seasonally adjusted 0.6% in September after a 1% gain in August, the government said. It was the largest decline in spending since December.
Real disposable incomes after taxes fell a seasonally adjusted 0.1%, the fourth decline in a row. ...
... Meanwhile, the Commerce Department said current-dollar (not inflation-adjusted), spending fell 0.5% in September after a 1.4% gain in August. Current-dollar incomes were flat after a 0.1% gain in August. ...
More Deception Than Fact Surrounds Surge in GDP | Kevin Price/Examiner.com
The 3.5 percent jump in the Gross Domestic Product (GDP) has many (particularly in government) declaring that "the recession is over!" Tell that to the 10 percent of the population that remains unemployed and to the thousands of small businesses limping along in an economy that is still flat, at best. There is an old saying, "any increase is significant when you are starting at zero." That is a fair summation of the "jump" in the GDP.Many who are well versed on what is going on in the political and economic front are far more cautious than those in politics with an agenda and those in the media who are die hard fans of those with an agenda. Many economists are approaching this increase in the GDP with a healthy amount of cynicism, which may be why you are seeing little about their criticisms in the media. But there are many with serious business and economic credentials that are pleading for caution.
RDQ Economics states that "We need many quarters of GDP running at this pace (or faster) to make significant inroads into reducing unemployment." Great point, jumping to conclusions about the recession will have us making 10 percent unemployment a reasonable expectation for a healthy economy. I do not believe any of us are ready for that.
Stephen Stanley, RBS stated that consumption played a big role in getting the increase, but the "details look less promising. About 40% of the increase in consumer spending came from motor vehicles, reflecting the transitory boost from the cash-for-clunkers program. As auto sales recede in the fourth quarter, consumer spending is likely to grow much less rapidly. Similarly, state and local governments seem likely to face tougher cutbacks with no further boost from the fiscal stimulus while defense spending is likely to cool. Meanwhile, residential investment looks likely to keep growing but at a less vigorous pace while business investment spending growth looks unlikely to improve much more until a clearer picture on consumer demand emerges." The increase is caused by government, which can only be sustained by continued increases in spending, which will only further destabilize the long term economy. Our GDP is built on a house of cards and Stanley's suggestion that the fourth quarter will see another decline makes perfect sense.
Guy LeBas, Janney Montgomery Scott, note that "The final handful of dirt on the Great Recession's grave: today's data provides a needed psychological end to seven quarters of shrinking economic output. While there's a great deal of uncertainty as to conditions for the coming few quarters and years, at least we can say the last few months have been good ones for output. We remain very much concerned, however, that the pace of consumer activity will slow sharply now that government spending incentives are expiring." Bottom line is that there is a genuine concern that the increase is driven by government smoke and mirrors, and not in a real increase in consumer demand.
Paul Ashworth of Capital Economics stated that "Our concern, however, is that all those positive factors will fade badly in the second half of next year. If consumption growth remains unusually lackluster, then GDP growth would slow to a crawl again." Ashworth, like many economists, recognizes that this demand is artificial and driven by the government. When the government pressure subsides, the GDP will likely shrink.
Millan L. B. Mulraine of TD Securities suggests that "with the significant fiscal and monetary stimulus providing the main impetus for this sharp rebound, we expect GDP growth in the coming quarters to be less robust as their impact wanes..." Again, government created GDP.
Finally there is John Silvia of Wells Fargo who noted that "Big contributors were consumer spending on autos - cash for clunkers - federal government, inventories and housing - tax credit… Core issue: how much of this is sustainable without Fed programs?" What an excellent question, one I wish was asked by more people in politics and the media.
Copyright © 2009 Clarity Digital Group LLC d/b/a Examiner.com
Peter Schiff: Recession Is Not Over & the GDP Growth is Not Real | Dian L. Chu/iStockAnalyst.com
Market Cheers Over Ugly GDP Report | Mike Shedlock/Global Economic Analysis
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