on the GDP…
The world’s largest economy expanded at a 3.5 percent pace from July through September, exceeding the median estimate of economists surveyed by Bloomberg News, after shrinking the previous four quarters, figures from the Commerce Department showed today in Washington. Household purchases climbed 3.4 percent, the most in more than two years.
Policy makers will now focus on whether the recovery, supported by federal assistance to the housing and auto industries, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s options for more aid, while Federal Reserve officials try to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.
“A lot of this is thanks to government support,” Kathleen Stephansen, chief economist at Aladdin Capital Holdings LLC in Stamford, Connecticut, said in an interview on Bloomberg Television. “We still have major headwinds for the consumer. That worries me. The consumer, in fact private demand in general, is not ready yet to pick up the growth baton from the government.”
Which is exactly why I question the sustainability of this number. Nor do I think we should declare The Great Recession a thing of the past. Barry Ritholtz writes:
If we look at the 5 factors NBER considers — GDP, real income, employment, industrial production, and wholesale-retail sales — its somewhat ambiguous to say unequivocally that the recession is over. We are still losing an inordinate number of jobs (250k+ / mo), industrial production has improved, but is soft, retail sales have been mostly flat, and real income has been negative for a decade.
I’ll add a few more factors – the problems with financial institutions and troubled loans have not gone away, home prices have yet to stabilize, business inventories are still being cut, consumers are still overleveraged, business investment is still relatively weak and access to credit is still constrained. Yes, Cash For Clunkers, the $8,000 home buyers tax credit and other federal measures contributed to the GDP growth and in no small amount (excluding auto sales, GDP growth was approximately 1.9%); however it is hard to be optimistic when growth in the private sector, the growth required for long-term sustainability, is weak if not non-existent.
GDP is up. The other metrics suck. That’s where we are.
More at Memeorandum