Don't Believe The Hype Over The 3.9% Growth In GDP

Apparently, the economy -- as measured by the Gross Domestic Product (GDP) -- grew by an unexpected 3.9% in the third quarter.  Coupled with 4.6% in the second quarter, this is the best growth in back-to-back quarters in 10 years.  But, there is a serious problem with both of these numbers. The fact is, that the consumer spending is a lot weaker than those numbers would imply.

You see, about 70% of any GDP calculation comes from what you and I spend.  While this last quarter looks rather hot with a 3.9% growth rate, the consumer spending only grew by 2.2%.  In an even hotter second quarter at 4.6%, consumer spending only rose by 2.5%. Simply, consumer activity is tepid and that's not good.  It shows that lagging incomes, high rates of poverty, and higher prices for food and energy are taking a toll.

There is also another number that makes up the GDP and that indicates a lack of consumer spending: Imports.  We are a nation who is heavily dependent on imported goods.  Yet, last quarter they fell seven tenths of a percent.  Proving the demand for imported goods has also slowed.

This begs the question, if 70% of GDP is household spending and that was weak, where did all the growth come from.  Well, you can thank our war with ISIS.  Military spending jumped 16%;  and overall, federal spending jumped 9.9%.  Business spending, too, had a hefty impact; growing by 7.1%, but it is always heavier in the third quarter as manufacturers rev up production of goods prior to the holiday season. 

Personally, I think that all the business spending may be for naught.  Especially, if the consumer continues to lag behind.  It may just be the case that the consumer is the Grinch that stole this Christmas.

References:

U.S. Third-Quarter GDP Revised Up to 3.9% Growth: http://online.wsj.com/articles/u-s-third-quarter-gdp-revised-up-to-3-9-advance-1416922352

U.S. GDP Grew 4.6% In Second Quarter 2014, Up From Earlier Estimates: http://www.forbes.com/sites/samanthasharf/2014/09/26/u-s-gdp-grew-4-6-in-second-quarter-2014-up-from-earlier-estimates/

What Are the Components of GDP?: http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Components.htm

New data shows Americans' incomes still stagnant after recession: http://www.reuters.com/article/2014/09/16/us-usa-economy-poverty-idUSKBN0HB1LN20140916

If There’s No Inflation, Why Are Prices Up So Much?: http://business.time.com/2013/03/12/if-theres-no-inflation-why-are-prices-up-so-much/