Are GDP Numbers a Trick or a Treat?
Good news on GDP -- maybe a little too good.
The Commerce Department’s Bureau of Economic Analysis (BEA) released its third-quarter report, claiming Gross Domestic Product (GDP) grew by an annual rate of 3.5%. The report goes on to list a number of indicators leading to the conclusion that the economy, though still unspectacular, is on the upswing. With Election Day right around the corner, that’s good news, right? Maybe it’s a little too good.
Barack Obama has been claiming for years that we’re on the right track thanks to his spending spree, yet many businesses and families still feel they are in the midst of a stagnant economy. So let’s take a closer look at the report to see just what the BEA had to say about our “growing” economy.
Third-quarter GDP is down from the second quarter’s 4.6%, but still far better than the first quarter’s 2.1% contraction. This third-quarter performance is also better than early estimates, which predicted growth just under 3%. The months between April and September featured the strongest six-month growth since the second half of 2003.
The BEA reports consumer spending rose moderately at a 1.8% annualized rate. Business investment on equipment was up 7.2%, and exports grew by 7.8%, while imports were down 1.7%. This contributed to a rise in the sale of durable goods among consumers not seen since 2006. Inflation measured by the Consumer Price Index rose just 1.2% – down from last quarter’s 2.3% due to overall falling energy prices.
How fortunate for Barack Obama and Democrats in power that this positive economic report comes out just days before the midterms. It brings back memories of the days leading up to the 2012 presidential election, when Obama spun a slight uptick in the unemployment rate to suggest that the country was still better off than it would have been without his failed stimulus and his punishing interventionist policies. “The private sector is doing just fine,” he said that summer.
This year, Democrats are set to lose in a big way, and this well-timed BEA report could be viewed not as a positive report on the economy, but an attempt to mitigate Democrat losses at the polls. Yes, third-quarter GDP results were better than anticipated (amazing how expectations are always off), and yes, many of the major indicators look good. That’s how the compliant national media will report it, too. The trouble is that a closer look at the report doesn’t inspire confidence.
In a keen analysis of the numbers, James Pethokoukis of the American Enterprise Institute argues the GDP report is nothing more than “lipstick on a pig.” Pethokoukis notes that, since the last two quarters are really little more than a rebound of the first quarter, the year’s overall growth has not been impressive.
One of the biggest boosters to third-quarter GDP was a 16% surge in defense spending due to Operation Inherent Resolve. As for the high export numbers, we have reduced economic performance in China and Europe to thank for that, along with a strengthening dollar driven by concern over European debt and global security matters. These factors, though beneficial to the American economy right now, will lead to a slowdown in the future as world economies adjust and react to a bleaker outlook.
It’s also worth noting that every major indicator mentioned positively in the third-quarter report is down compared to the second quarter. And just wait until this report is quietly revised down sometime after the midterms.
Taking all this into account, it’s clear the economy is still not strong. Furthermore, there are no realistic appraisals that it will improve under current conditions. Chief among those conditions are the business-killing, government-loving policies of the Obama administration and congressional Democrats. Voting out Democrats in Congress is not a guarantee the economy will improve, however, because we’ll still have Obama for two more years, and Republicans haven’t exactly paved the way to economic salvation. But it’s a start.