From The Wall Street Journal:
U.S. Third-Quarter GDP Rose 2.8%
Consumer Caution, Political Friction Could Weigh on Economy in Coming Months
By Josh Mitchel | Updated Nov. 7, 2013 12:12 p.m. ET
WASHINGTON—Stronger economic growth in the third quarter masked weak spending by consumers and businesses, the latest sign of a U.S. economy struggling to gain traction as the recovery entered its fifth year.
Gross domestic product, the broadest measure of goods and services produced across the economy, grew at an annual rate of 2.8% in the July-through-September period, the Commerce Department said Thursday. That followed 2.5% growth in the second quarter and marked the fastest growth rate in a year. Economists expected third-quarter growth to clock in at 2%, according to a Dow Jones survey.
The stronger overall growth was a result of businesses restocking their shelves, a factor that could lead companies to produce less in the current quarter. Excluding the effect of inventories, the economy grew at a torpid 2% pace that was largely in line with its performance throughout the slow recovery.
Americans during the third quarter increased their spending at a 1.5% pace, matching only one other quarter for the lowest spending growth since 2009. Companies cut spending on equipment—a key indicator of business investment—for only the second time since the recovery began in mid-2009.
Both developments, before the Oct. 1 government shutdown began, may have reflected American consumers and businesses losing confidence as mortgage rates rose and the prospect of budget battles in Washington loomed. While state and local governments boosted their spending, federal spending declined in the quarter.
More at the link. But the article continues to tell the reader why the 2.8% growth rate isn’t really very good news, why it’s basically an anomaly, and why it won’t reassure the policy makers at the Federal Reserve and encourage them to cut back on the $85 billion per months “quantitative easing” program. Of course, with the nomination of Janet Yellen1 to replace Ben Bernanke as Chairman of the Board of Governors,2 there was little real prospect that the Fed would ease up on the easing in the first place.
But, as I read this article, I noted how so many economists told us that the sequester would be a disaster, some even saying it would put us back into a recession. From The Huffington Post, on February 22, 2013:
That is not exactly recession territory, but it is dangerously close. Harris’s numbers match up pretty well with those of other private-sector economists, including Macroeconomic Advisers. The private research firm recently estimated the sequester would gouge about 1.25 percent from GDP growth in the second quarter, leaving growth at a paltry 1.2 percent. Macro Advisers said the sequester could cost the economy 700,000 jobs through 2014.
A less-optimistic economist, Charles Dumas of British firm Lombard Street Research, on Thursday suggested the budget cuts and uncertainty leading up to them could turn GDP growth negative in both the first and second quarters — matching one common definition of a recession.
If we look at the economic growth figures from the chart in the JOURNAL, we see a slowly increasing growth rate in the two quarters since the sequester went into effect. With a 2.5% GDP growth rate in the second quarter, we are seeing something very close to what Macroeconomic Advisers said would be the growth rate if we avoided the sequester, and twice what they projected would be the case if the sequester went through. I note that the economists surveyed by the Journal had expected a lower, 2.0% annualized growth rate. Perhaps we shouldn’t be making policy based on the projections for the future by economists who can’t even get what has already happened right.3
Translation: what they said would (probably) happen did not happen.
Of course, your Editor stated that he completely supported the sequester, wishing only that it was larger than it is and that he could have arranged the cuts differently, with the vast majority coming from domestic spending.4 The Editors of The Wall Street Journal were similarly not scared of the sequester. Why, it’s almost as though the liberal doomsayers were wrong, and the conservatives were right all along.
- Keith Weiner wrote in Forbes that Dr Yellen’s confirmation would be a disaster. ↩
- Dylan Matthews of The Washington Post’s Wonkblog wrote an almost sycophantic article about her. ↩
- The current figures are preliminary, and could be revised either up or down. ↩
- I did not include the adjective “vast” in the original, but it is what I meant. ↩