GDP Growth Revised Down to 2.8 Percent

The “recovery” in the third quarter this year was downgraded today, from 3.5 to 2.8 percent GDP growth:

The government’s new reading on gross domestic product was not as energetic as the 3.5 percent growth rate for the July-September period estimated just a month ago.

The main factors behind the downgrade: consumers did not spend as much, commercial construction was weaker and the nation’s trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.

But even the 2.8 percent number is largely a sham. Nearly 50 percent of that number is autosales—many of which would not have happened with the Cash for Clunkers program; roughly 15 percent of that are homesales—many of which would not have happened without the tax credit; and at least a quarter of it is normal government spending. So the recovery in the real economy is pretty small.

The main problem is that the government programs increasing sales have to pull demand from the future to be successful. So Q3 2009 didn’t have 2.8 percent growth, it had marginal growth combined with fourth quarter spending and spending from 2010 and 2011.