Friday, October 28, 2011

All The Excitement Over 2.5% GDP Growth

On Wednesday, the initial take on the third quarter 2011 Gross Domestic Product (GDP) came in at an unexpected plus 2.5%. In response, I can only imagine that those in the Obama Administration were handing out cigars on the assumption that the economy had just dodged a possible double-dip recession bullet. Then, too, the left-wing media was cheering about it because it is generally assumed a 2.5% GDP growth is the minimum level that's needed to start eating into the unemployment number.

But, before anyone gets too excited, this is only a "first pass" on the GDP number. In each of the next 3 months, that number is subject to revisions. Just last August, the 2nd quarter GDP growth was revised from 1.3% to 1%. Then, in September, it was revised back to 1.3%. But, the real shocker of all revisions came on July 29 of this year when the final number on the first quarter GDP was suddenly dropped from 1.9% (as reported in June) to just .4%. A whopping 475% downward revision.

For me, that 2.5% GDP number has to be suspect. That's because, in a separate report, just released this morning, the consumer, while spending more, seems to be struggling with disposable income falling for the 3rd straight month; real wages stalling; and people being forced to eat into their savings to pay the bills. (Click here to See Story: Consumer spending up in September on savings) Certainly, that's not a formula for a healthy economy and that's why I think the 2.5% GDP growth figure might just be overstated and due for some forthcoming downward revisions. And, for sure, this also casts doubt on having a strong 4th quarter GDP number.

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