Ok, a quick review of GDP is revealing of a few things of interest. Let’s start with the data, and go on from there. BEA reports:

“Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.”

We get the usual disclaimers that this is an “estimate based on source data that are incomplete or subject to further revision” (Next GDP update is November 24, 2009).

Where did the growth come from?

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased…

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11 percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from the second-quarter change.

The 1st question to ask about GDP is the degree of inorganic/artificial gains. As the above paras suggest, much of the improvement is where the government is spending, incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending. As expected, Inventory reduction helped, and unexpectedly, increasing imports hurt.

A large chunk of the gains — 1.66 percentage points — came from Car sales in the form of cash for clunkers; this will not be in the Q4 data.

Home building soared 23.5% — reflecting a combination of zero percent interest ratyes (ZIRP) and 1st time homebuyers tax credit. That was good for another 0.5 percentage points of GDP.

Well over half of the gains are therefore government related.

Also of note: Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the deflator (That also added to the REAL GDP figure). Hence, a chunk of the gains are pure inflation.

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Q3 2009 GDP

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Source:
Gross Domestic Product (GDP) Q3 2009 (ADVANCE ESTIMATE)
BEA, OCTOBER 29, 2009

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Category: Data Analysis, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

55 Responses to “Big GDP Number: 3.5%”

  1. Free Market Extreemist says:

    Find a way to spin this negatively! Quick!

    ~~~

    BR: There is no spin here; This is a factual review of what went into the GDP data

  2. davossherman@gmail.com says:

    GDP is as baked as Enron’s books were. You own a house, the BEA calculates what you WOULD (but don’t) pay in rent and adds it to GDP.

    I guarantee that after the depression is over they are going to look back at economists from this era like we look back at apes and cave men.

    I myself don’t give a flying flip about GDP it is as bogus as Bernanke.

  3. Mannwich says:

    @Extremist: Um, almost all spurred by government intervention. Do your touchdown dance when we can achieve these numbers without any fake “stimulus” of some sort. This was ALL a sugar-high.

  4. rtalcott says:

    What was the impact of one time programs like Cash for Clunkers?
    rt

  5. Mike S says:

    Wow. Almost of this is government driven.

    We should be spending another 3% to get this economy really going. I am very curious to see the change in the deflator as more numbers come in.

  6. Mannwich says:

    So what you’re saying, BR, like I surmised above in response to Mr. Extremist, is that this was all smoke and mirrors, nothing of substance, akin to hanging new $1,000 drapes on a condemned building. Lipstick on the pig, if you will. What’s funny is corporate America is like this too – they can’t fix the hard problems, so they take the easiest route, which is to make it LOOK like things are getting fixed and improving. Then they all collect their bonus and stock options money and get the heck out of dodge before the house of cards falls into their successors’ lap. And their successors, if they are wily (but dishonest) enough, do it all over again.

  7. ashpelham2 says:

    With so much of the GDP being driven by government dollars, I don’t see how one can effectively conclude that we’ve exited the recession. Even backing out the effect of CFC and the tax credit for homebuyers, we are still positive. Will it be said that we are no longer in recession because we had one quarter of abysmal growth, after 4 quarters of cascading contraction? Why not apply the same logic as the NBR definition and wait for 3 quarters of growth?

    Pardon if that’s a dumb question. Not an expert on GDP and it’s calculation….

  8. JZumbrun says:

    @Rtalcott

    “A large chunk of the gains — 1.66 percentage points — came from Car sales in the form of cash for clunkers; this will not be in the Q4 data.”

    I think it’s impossible to even really hazard a number about how much of the housing recovery should be considered artificial stimulus. Housing contributed .53 percentage points. Government consumption and investment contributed .5 percentage points too.

  9. Mannwich says:

    Private sector depression, government borrowed free funny money mini-economic boom. Sounds healthy to me.

  10. rustum says:

    Is this GDB growth a backward looking indicator?

  11. The Curmudgeon says:

    Let’s see, gummint over half of the number? I’m surprised. By now I figured it’d be more like about 98% of the increase, as all economic decision-making gets sucked into the D.C. Deathstar.

    If Lenin and Marx had only lived long enough. They’d seen the rejection of top-down bureaucracies masquarading as economies by their own people, only to have their ideas adopted by their capitalist nemesis. This is a curious, curious world in which we live.

  12. HarryWanger says:

    No surprises in GDP other than the fact that inventory rebuilds didn’t play a bigger role. That’s actually quite scary.

    So here’s my question…again. Who’s hiring and where? Anyone? There is no such thing as a “jobless recovery”. There is no sign that the negative job growth of this decade is magically going to turn around. There are about twice as many unemployed this year as there were last year at this time. You don’t think that’s going to affect holiday sales? I got news for you – it already is. My retailers are telling me they had the WORST October EVER.

    Remember, last year going into the holidays people were freaked but not overly concerned about losing their jobs. The big layoffs came after the holidays for the most part. You don’t think that’s hanging around in the back of consumers’ minds this year??

  13. hue says:

    everything is a lagging indicator except for the stock market. it’s a good time to buy. i’m using my Citibank card at 29.99% interest for Christmas shopping.

    is Uncle Sam applying the birth/death model to all statistics?

    ~~~

    BR: Not everything is a lagging indicator.

    The key issue is does a given economic data point lead or lag the economic cycle?

    Employment is considered a lagging indicator because it continues to fall after the economy bottoms and moves higher.

  14. HarryWanger says:

    hue: You should check around before using that card, I’m sure CapitalOne has a 34.99% card you could use.

  15. Bruce in Tn says:

    Just for discussion purposes:

    http://market-ticker.denninger.net/archives/1550-GDP-Is…..-Better-Than-Expected.html

    “You cannot have an economic recovery when on a q/o/q basis real disposable income is contracting at a 7.4% annual rate and worse, the spread between nominal and real income is widening, indicating that mandatory purchases such a food, energy and health care – are increasing.”

    …Denninger takes the various elements of the reported GDP figure apart and offers commentary.

    …At least an interesting read…(I very seldom read his blog..)

    B in T

  16. Thatguy says:

    I hate to ask, but what happened to Wanger?!?!?!?!
    I go on vacation 3 days and it seems like he’s been entirely coopted by the TBP posters. What happened to following indices and mini economic booms and Dow 11,500?

    I’ll give him credit for being open to changing his opinion based on additional info, but this seems like a drastic transformation. What tipped the scales Harry?

  17. Pat G. says:

    Most of the GDP number came from Federal spending. I just read where those who have been receiving unemployment benefits are going to get another extension. Follow along; 26 weeks from their states, then 53 weeks from the USG and finally another 14 to 20 week extension going through Congress now. Add it up; 99 weeks of unemployment benefits, temporary positions via the Census effort, 1 in 8 U.S. households getting food stamps, CFC, first time home buyers credit, etc… I’d bet that 90% if not more of the 3.5% GDP increase wasn’t USG spending-related. Guess who pays for that??

  18. HarryWanger says:

    10/21 I sold my long standing position in AAPL and there was a strange feeling in the air. I started adding DXD and a bit of QID. Seemed to me that the cheerleaders were screaming higher on “great” earnings but the chart wasn’t. Actually, the charts were screaming TOP!

    Today we saw the mini economic boom I had been squawking about for weeks. Problem is, I realized last Thursday that it was priced in just based on the reaction of the market to earnings. Also, I began to see in my own business that we were having a terrible October. Confirmed that with other outlets. With unemployment almost double what it was last year, I can’t see even a decent holiday season. Doesn’t add up.

  19. Bruce in Tn says:

    Harry, that is interesting…perhaps you really are 47 years old and own your own business. I admit I was sceptical..

    I will say, that unlike many, I like to see when someone changes their mind, at least that means they are paying attention, and not locked in to some obscure notion….I will now remove you from the Franklin column…(not that it matters a whit to you…)

    B in T

  20. PithyDog says:

    The G in GDP stands for Government.

    It grew, liberty shrank, thanks to “I’ll give you $4500 for a new vehicle monthly payment you may or may not be able to afford;
    and $8000 for a mortgage you may in fact not qualify for.”

    Come on down, the price is right!

  21. rustum says:

    Looks like ECRI indicators are also peaked. First time from last December, their indicators started moving down.

  22. DeDude says:

    “corporate America is like this too – they can’t fix the hard problems, so they take the easiest route, which is to make it LOOK like things are getting fixed and improving”

    I actually think a lot of these “corporate raider” CEO’s know how to fix the hard problems. It’s just that its more lucrative for them to create Ponzi growth, then harvest the bonuses and get the heck out of there (to be recruited as the miracle saver by another company) before it all collapses. Taking the easy money beats taking the hard money, when you have the choice.

  23. Mannwich says:

    I agree, DeDude. Everyone trying to take the easiest route to short-term “riches”, however illusory and temporary that may be. I find it quite sad, actually.

  24. call me ahab says:

    rustum asks the right question-

    if consensus is that starting Q1/2010 that growth will turn abysmal-

    then who cares what the GDP # is? especially if we look at the stock market as forward looking-

    my guess- good chance of a sell off near close

  25. HarryWanger says:

    Bruce: Yes, I am indeed 47 and own a business based in Minneapolis. Hell, Mannwich is there, I’ll let him know when I’m in town and we can grab a cocktail. Then he can report back to everyone what who HarryWanger is.

  26. GetALife says:

    Wanger: You had a good run there with your predictions but now you’re falling down…about to demote you from G-U-R-U status unless you can turn it around pronto

  27. Rikky says:

    >>What tipped the scales Harry?

    i like the new harry. my guess is he switched his meds.

  28. Bruce in Tn says:

    Harry,

    Anyone who has employees knows you have to value everything to decide how to make a living. Sometimes it ain’t easy.

    B

  29. hue says:

    Harry is a pockmarked face 47-year-old biz owner who make excellent trades this summer and fall.
    Is Mannich real?

    everyone seems to be convinced that the Great Recession is over. Armargeddon is off the table is another consensus. is that fadable?

  30. HarryWanger says:

    Bruce: I’ve owned other businesses in the past, one in particular had about 100 employees. I’ve always faced challenges through other “recessions” and made it out alive with minimal damage to employees, i.e. rarely had to lay anyone off. This “recession” is indeed very different in the consumer discretionary area.

    This October is giving me a direct comp to what I thought would be the worst October we ever had (2008). That comp is what is scary. And knowing it’s not just our operation but a large group of retail outlets spread around the region that are beyond freaked right now, tells me the charade will come crashing down. IMO it will happen sooner than most think.

  31. ashpelham2 says:

    HarryWanger: You may not feel free to give this information, but is your product/service in consumer staples or in discretionary goods? :D

    Aside from that, this is the whole thing about inflation figures that drives me crazy: While the cost of big ticket, once in few years type purchases is down, the cost of doing business and running a household is alive and well. The food and energy, which is so volatile as to not be included in core CPI (rolls eyes), but it’s an integral part of everyone’s daily life, and yes, it’s volatile, but it rarely ever takes a step back, such as last fall/winter, when fuel crashed from 4.00 gallon to 1.50 gallon. That sort of thing doesn’t happen in corn, soybeans, or other essential commodities. And, once the inflation from COGS is built into consumer staples, the price rarely comes back to earth. Sure, Wal-mart can sell me an LCD TV for $50.00, but I’m not buying one of those every week. I’m buying baby formula for a 6 month old, and I”m buying diapers, and I’m paying for childcare, which seems to never stop increasing….Those are hard costs of living, and aren’t negotiable. Those costs are experiencing at least NORMAL inflation, but never, ever, ever, deflation.

    The people making these statistics need to get out from behind their computers and stop data mining and go to the store.

  32. rootless_cosmopolitan says:

    Barry,

    “Also of note: Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the deflator (That also added to the REAL GDP figure). Hence, a chunk of the gains are pure inflation.”

    Ahhm, no. The other way around. A chunk of the gains in real GDP is due to a lack of inflation for domestically produced stuff. The deflator subtracts from the nominal GDP change. The stronger the price increase for domestically produced goods is the lower is real GDP growth and vice versa compared to the nominal GDP change. During deflationary periods, the real GDP change is greater than the nominal GDP change. The small GDP deflator for Q3 2009 is mainly due to price decreases for nonresidential and residential investments and for durable goods.[1]

    [1] see http://www.bea.gov/newsreleases/national/gdp/2009/txt/gdp3q09_adv.txt, Table 4).

    rc

  33. rootless_cosmopolitan says:

    Thatguy,

    “I hate to ask, but what happened to Wanger?!?!?!?!
    I go on vacation 3 days and it seems like he’s been entirely coopted by the TBP posters.”

    We are the Borg … ;-)

    rc

  34. zyzy says:

    enough of this.
    http://video.google.com/videoplay?docid=1594858085663574256#docid=4014305826785678007

    just accept that Berry is anti American! That’s it.
    Hurra! to the wisdom of the Government and the President and Fed!

    i’m off to finish my rice vodka and learn some hindi.

  35. Bruce in Tn says:

    Hue:

    Until we get positive GDP without a massive government stimulus, I will vote Nay on the recession being over. Besides, where will this new level of debt take us? When interest rates rise, who will win? Equities????

  36. rustum says:

    Unbelievable rally.

  37. Mannwich says:

    @hue: Mannwich is a 39-year old married Mann with a dog. Lives in SW Mpls. Is indeed “real”. Real-ly irritated lately. Not a trader. Just a responsible saver who thinks people who who do the right thing in this country constantly gets the shaft.

  38. rustum says:

    Should have gone long with junk like SAY. Kicking myself.

  39. bsneath says:

    What Harry is telling us is that we cannot rely on a consumer rebound to get out of this recession. Personally I believe a big reason for the lack of consumer income is the concentration of wealth and incomes via hedge funds, global competition and tax policies, but that is another discussion.

    We need to accept that we probably will have to have artificial stimulus of the economy until consumer balance sheets are in order. This will be difficult for fiscal conservatives to accept, but it is what is it.

    The dollar will have to continue its managed, steady, orderly decline so that we make more and import less. With the consumer out of the picture, there simply is no other source for permanent economic growth. If anyone can think of some other scenario, please let me know.

    With respect to government stimulus, lets hope the next round (and there will be a next round) is focused on how to create the most permanent, self-sustaining jobs per dollar of federal funds.

    Since banks are not lending – mainly because nobody wants to borrow – stimulus dollars should have incentives f0r the private sector and state & local governments to borrow to invest in productivity and infrastructure improvements.

  40. rootless_cosmopolitan says:

    bsneath,

    “We need to accept that we probably will have to have artificial stimulus of the economy until consumer balance sheets are in order.”

    So what is the magnitude of stimulus we are talking about here? 25 trillion US-dollars new government debt over the next ten years?

    rc

  41. Mannwich says:

    @bsneath: I think it’s patently false to say that “nobody wants to borrow”. I’m trying to get a business going and applied for a $30K business loan from WFC and was turned down no questions asked. Not one. Didn’t even ask for the business plan. Aside from our mortgage a, we carry no personal debt either and pay ALL of our bills on time for years now. Playing by the rules gets you nowhere in this country and everyone knows it.

    In fact, I read today that a poll was conducted with a sampling of teenagers and it was found that they were five times more likely to think that cheating is required to get ahead in life as an adult. Gee, I wonder where they got that thought from?

  42. wally says:

    “No surprises in GDP other than the fact that inventory rebuilds didn’t play a bigger role. That’s actually quite scary.
    So here’s my question…again. Who’s hiring and where? ”

    My answer: I’m off for a three-month ‘furlough’ – started last Monday except that I happen to be on jury duty this week which complicates it.
    The workload in architecture is still decreasing.

  43. Mannwich says:

    That’s “five times more likely” than adults at least 50 or older……..

  44. Mannwich says:

    And think of the ramifications for society when those kids become adults in leaderships positions in all areas of our society. Pretty sobering if you ask me.

  45. bsneath says:

    rc,

    The subsidies will come off as soon as we transition to a balanced economy where we export and make more at home of what we consume.

    Any stimulus ought to be targeted to essential public works, domestic energy sources, emerging technology and export investment incentives, etc. When possible they should be designed in ways to stimulate additional private sector and state/local borrowing to leverage & expand their effectiveness.

    As an example of what can be done, the feds could authorize $150 billion in new highway projects, issue bonds to pay for them and add a 10 cent gas tax to cover debt service. The gas tax can even be phased in over 4 years. It is revenue neutral and would be easy to accomplish if there was the political will.

    Basically we should be using our current excess capacity of workers and production to make our economy more productive, particularly for export industries and domestic producers.

    The alternative is exactly what you are inferring – $25 trillion in federal programs to aid the unemployed and homeless. Great for bureaucrats. For the economy and workers, not so much.

  46. bsneath says:

    Mannwich – Of course many small businesses have trouble securing credit. Making more creidit available is without doubt an important remedy to our present situation.

    I have read however that in addition to banks being reluctant to lend, loan demand also falling because in this environment, businesses do not want to expand and consumers want to cut back.

    Certainly there is demand for loans out there that is not being met. However, there also is so much surplus capacity – be it offices, CRE, houses, factories, etc., that total demand for credit is contracting. Nobody in their right mind would borrow money from a bank to build a new office building or a shopping center.

    One of the solutions is to provide incentives to expand fiscally-responsible credit demand. Where can we do this? New investments is domestic energy production, emerging technologies, export industries, highway construction, essential public works projects. Use this period of time as an opportunity to develop new industries and bring our infrastructure up to modern standards. Investment of dollar and not federal program expenditures.

    How do we do this? Investment tax incentives, credits and grants for the private sector and perhaps federal/local matching grants and debt financing programs for the public sector.

  47. bsneath says:

    Mannwich – You are hitting on a key point. “Cheating” has become pervasive in government, business, home ownership, you name it. To this day I cannot comprehend how homeowners were allowed and in fact were encouraged to lie about their incomes on mortgage applications.

    Our schools should teach the West Point Creed, “I will not lie, cheat or steal, or tolerate those who do.”

    Or may be we need to implement the Chinese form of discipline and just hang the SOBs.

  48. Mannwich says:

    @bsneath: It’s not what we TEACH (say) to our kids, it’s what we DO that matters. They see cheating being done everywhere in our culture, and those being rewarded for it. We can teach them until we’re blue in the face. If they see us DOING differently, it’s all a big waste of effing time. Can you blame them for thinking this is the “best path to prosperity” (as Sir Goldilocks would say)?

  49. danm says:

    26% of increase from cars
    32% of increase from gasoline

    13% of increase from healthcare
    8% of increase from financial services

    19% of increase from ch. in inventories
    10% of increase from residential investment

    -32% from net exports (the oil that had to be imported)

    19% of increase from governement spending

  50. rootless_cosmopolitan says:

    bsneath,

    And why would the subsidies for your program to stimulate your economy require much less new government debt over the next 10 years than the mentioned 25 trillion US-dollars to get sufficient economic growth with it? I don’t see this. For the last three decades private debt has had to about double every decade to get growth in the US during the expansion phases of the business cycle. The private debt load w/o financial institutions amounts to about 25 trillion US-dollars (w/ financial institutions about 41 trillion), currently. I very much doubt that the US government will be able to stimulate substantial economic growth w/o adding new debt that is in the same ball park as the private debt load, if the private sector can’t add much to its debt anymore.

    rc

  51. danm says:

    Someone was looking for a negative spin…..

    3Q2009:
    10.1T in consumer expenditures = 90K per household when we know that average household income = 65K. Spending is 1.35X income

    4Q1995:
    5T in consumer expenditures = 50K per household when avergage household income = 45K

    So if we go back to the same ratio of 1.11X of spending to income (and that is still overspending), GDP would decline by around 1.5 to 2 trillion.

  52. Vermont Trader says:

    “Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the deflator (That also added to the REAL GDP figure). Hence, a chunk of the gains are pure inflation.”

    BR – you’ve got this all mixed up..

    Real GDP = Nominal GDP – Chain Deflator

    the deflator was 0.8%… it was expected to be 1.4%

    the deflator came in 60 basis points LESS than expectations. the lower the deflator, the higher real GDP is..

    nominal GDP was 4.3% and after deflating (backing out the price increases) by 0.8% you get 3.5%

    if the deflator had come in inline at 1.4% with the same nominal GDP of 4.5% the headline real GDP number would have been 2.9%

    (it’s actually more complicated than this b/c it depends on the relative price changes of exports vs. imports but its late)

  53. hue says:

    BR: Not everything is a lagging indicator.
    ———–

    ha ha. sorry Barry i was being sarcastic/ironic/snarky. that is hard to convey in the comments and/or email.

    i know that unemployment is typically a lagging indicator, and typically the last thing to pick up in economic cycles. but in this downturn, it’s likely to stay severe. housing and personal consumption expenditures typically lead us out of recessions, but will those two things be leading indicators in this cycle?

    back during the Internet bubble, we heard so much about this time it’s different, but it wasn’t during the boom. in the Great Recession, many are using typical, normal indicators, but will this time really be different? i think it will, but i’m not certain. only time will tell.

    Mannwich, i knew you’re real. i’ve read this blog off and on for a long time. i just don’t think that you will hook up with Harry for drinks. as far as being a responsible saver, “sometimes, everybody takes a beating.”