It’s Not Over Until We See the Fourth Quarter
The U.S. Department of Commerce estimated a 3.5 percent jump in annualized GDP growth for the third quarter of 2009, a strong signal that we may be nearing the end, or even be out of, the recession. But this good news is not all it’s cracked up to be.
First, a 3.5 percent jump is a huge rebound from the earlier 6.4 percent and 0.7 percent declines. If anything, the new positive numbers suggest this is a very volatile and uncertain time for the economy.
Second, some of that boost in spending is largely a paper increase because it reflected spending from the Cash for Clunkers program which did little if anything to boost long-term economic growth. Consumer spending was simply advanced into the third quarter. While some manufacturing inventories have increased (a good sign) the economy will need to build on sustainable consumer buying power and increased efficiency. We haven’t seen that yet.
Third, uncertainty still hangs over whether the U.S. can manage the debt it’s taken on to bail out the financial sector and the economy. Consumers and businesses are still pessimistic, and talk in Washington of adding more to our debt with a second stimulus isn’t settling any nerves about the long-term prospects of the economy.
We need to remember it took the National Bureau of Economic Research 12 months to officially declare that the economy was in recession because the data were so hard to read. It’s no different now. So, we will need to wait at least until Fourth Quarter GDP results are in before we can even make reasonable speculations about the economy’s health.
– Samuel R. Staley is director of urban-growth and land-use policy at the Reason Foundation and teaches urban and regional economics at the University of Dayton.