The 3rd quarter showed a 3.5% increase over the 2nd quarter GDP (Gross Domestic Product). According to the preliminary look at 3rd quarter GDP report the primary contributors where (as quoted by the report):
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.
Let’s take a better look at the above quote from this widely viewed report.
The first primary contributor according to the report was Personal Consumption Expenditures. The report specifically cited that auto sales accounted for a large part of this upturn. Cash for clunkers is actually quoted by the report as a major contributor to these sales.
Exports are the second contributor named in this report as a large contributor. When the Dollar is cheap so are good that are priced in the Dollar. The news is filled with headlines on how the US Dollar is under significant pressure.
Private Inventory Investment is the next contributor on the list. Over the past year retailers have been shedding inventory to attempt to match supply with current demand. The shelves are empty and they need to be restocked if retailers want to sell products to consumers.
Residential Fixed Investment is named as another large contributor. First time home buyers have been scrambling to purchase homes to take advantage of the $8000 tax credit. In September alone nearly 50% of existing home sales where to first time home buyers. Nearly 70% of existing homes sales in September where under $250,000.
So last on the list is Federal Government Spending. It should be no surprise that Federal Government spending contributed a large portion of 3rd quarter GDP. Looking at what the report cited as the primary contributors to real GDP, I would argue that almost all of the GDP growth was from the government intervention.
The report also sighted the following:
Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.
From the above statement I would gather that consumers made less but spent more. Interestingly this current outcome is what the Federal Government wants to happen, spend our way out. With tight credit and rising unemployment, where does the money come from? Credit is what caused this problem, is it really the cure as well. Drug addicts don’t take more drugs to get off drugs do they.
