New Growth Report Further Muddies Economic Picture, Outlook
Thursday, November 29, 2012
|Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).|
The improvement in third quarter GDP growth reported this morning revealed a U.S. economy slightly less consumption- and housing-heavy than indicated by last month’s initial reading. Yet the new figures – which will be revised once more next month – also showed that these problematic sectors still rank among America’s main growth engines, and have been joined by some equally dubious drivers. Moreover, a new positive – a narrowing of the U.S. trade deficit – was accompanied by a greater slackening in business investment.
Today’s revised third quarter growth figures showed that inflation-adjusted gross domestic product expanded by 2.7 percent, instead of the 2.0 percent reported last month. (All figures are presented on an annualized, seasonally adjusted basis unless otherwise indicated.) Encouragingly, the share of the economy accounted for by personal consumption plus housing – the pair whose excessive growth fueled the last decade’s disastrous bubble – declined from 73.46 percent to 73.23 percent, mainly due to a dip in the consumption component.
Two other pluses: On this static basis, business investment represented 11.06 percent of all new third quarter economic activity, not the 10.86 percent first reported, and the government share of the economy was only 18.34 percent not 18.37 percent.
The role of personal consumption plus housing in the third quarter economy was greater than the 72.94 percent figure for 2010 but lower than 2011’s 73.36 percent and the second quarter’s 73.33 percent. Most important, these levels are only slightly below the 73.81 percent share of the economy represented by personal consumption and housing on the eve of the last recession. Nearly all observers now agree that this share was far too high, and in its absence, the United States has been unable to generate adequate levels of growth and employment. So the national economic structure that triggered near-disaster four years ago remains basically unchanged.
The business investment share of the economy remains toward the lower end of its recent historic range, and the overall government share keeps scraping along the recent historic bottom.
Moving from these static indicators to growth, the new third quarter figures tell a more unusual story. In inflation adjusted terms, the revisions show that the economy was $21.9 billion more than initially estimated. The personal consumption plus housing total actually came in $14.5 billion lower and the trade deficit was $10.7 billion less. But business investment was $3.6 billion lower, too, and business inventories were fully $27.2 billion higher.
The new patterns for second quarter to third quarter growth are broadly similar. Personal consumption plus housing grew by only 1.83 percent annualized, not the 2.42 percent first reported, and government’s growth rate was 3.44 percent, not 3.63 percent. The big positive changes were in trade and inventories. The former’s deficit was found to be shrinking at a 17.60 percent annual rate, not growing by 6.19 percent, and the latter grew by $19.9 billion rather than shrank by $7.3 billion. Business investment, however, contracted at a 2.23 percent annual rate – much faster than the 1.27 percent reported last month.
At this point, what the final third quarter revisions will show is anyone’s guess, and the impact of super-storm Sandy is likely to distort growth patterns and the economy’s composition for months, and possibly quarters to come.
Add to this mix uncertainty over fiscal cliff issues, ongoing woes in Europe and perhaps still in China, and the Federal Reserve’s apparent decision to provide massive stimulus indefinitely, and reliably gauging the American economy’s current status and future prospects seems set to become harder before it gets easier.
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).