Revised figures for third-quarter GDP growth show a 2.6% increase, which is somewhat less than the 2.8% that was forecast. The stock market shrugged at the news, losing 2 points off the Dow and 2.75 from the Nasdaq 100.
This is anemic growth, but better than the 1.7% from the second quarter. Is it the beginning of a positive trend? Reuters hopes so, writing that “data so far suggests growth accelerated in the fourth quarter and will remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government’s $814 billion stimulus package.”
Hang on a second. Government stimulus is temporary? It “winds down?” Did the Democrats tell us that before they grabbed over $800 billion of our money for “stimulus” spending – most of which ended up either wasted or poured into slush funds? Wasn’t that package only passed one year ago? I’ve seen kids get junk in their stockings that doesn’t wind down that fast. Obamanomics doesn’t even work if you spend $800 billion per year on “stimulus.”
What about that “fading boost” from rebuilding inventory? Well, businesses obviously buy a lot of stuff to prepare for the holiday shopping season, which is coming to an end. Much of the new GDP gain came from consumer spending, and that’s winding down too. Business spending was actually down substantially from the previous quarter.
Heavy inventory purchases leading into the holiday season don’t do much for permanent job growth. The warehouse at the end of Raiders of the Lost Ark had lots of inventory, but only a few “top men” worked there. Retail operations hire temporary help to get through Christmas, so those jobs will be going away next month. Returns and overstocking will ultimately take away some of the growth from seasonal inventory buying. Sustained growth comes from the companies that build the stuff you’ll be buying for Christmas next year.
A much better sign of long-term growth is the just-announced 5.6% growth in existing home sales, accompanied by a slight increase in home prices. Considering how difficult tight credit and botched foreclosures have made home buying, that’s pretty good news – a bit of light pushing through heavy dark clouds. Of course, much of this buying is driven by a glut of cheap short-sale property, but this also means the wreckage of the subprime mortgage crisis is finally getting cleared away.
2.6% GDP growth is an interlude – a cautiously optimistic economy holding its breath and waiting to see what happens next. Since we’ve retarded the labor market by spending billions on extended unemployment benefits, the key sign of sustained growth should be a wave of stories about corporations encountering difficulty hiring enough people to fill new positions. Many lower wage earners won’t start looking for work until their unemployment is close to running out (why should they?) and expanding operations need entry-level people. If Reuters is correct in its rosy fourth-quarter outlook, that’s the kind of story they’ll be running in the spring.