This Is Not a Strong GDP Report
Mark Thoma:
Economist's View: Real GDP Grows at 2 Percent in the Third Quarter: Positive growth is better than negative growth, but this is a loss relative to trend growth, and the fact the inventories are driving growth is of concern. Dean Baker puts it into perspective:
It may not be immediately obvious quite how weakly the economy is growing.... When an economy gets out of a steep recession, it should be soaring.... In the first four quarters following the end of the 1974-75 recession, growth averaged 6.1%. In the four quarters following the end of the 1981-92 recession, growth averaged 7.8%. The growth rate averaged just 3.0% in the four quarters following the end of this recession. But the actual picture is even worse. Most of this growth was driven by the inventory cycle.... If inventory fluctuations are pulled out, growth in demand averaged just 1.1% over the four quarters following the end of the recession. Final demand growth was down to just 0.6% in the most recent quarter.... Inventories grew at the second fastest rate ever in the last quarter. Growth is certain to slow in future quarters, meaning that inventories will be a drag on an already slowing economy. Instead of accelerating, we are likely to see growth just scraping along near zero.
I've been expecting a long, slow, agonizing recovery, in part because there's little chance that fiscal policy authorities will give the economy the boost it needs to recover faster... full recovery by 2013 is looking optimistic now. I wouldn't be surprised if it takes even longer than that.
The San Francisco Fed is also expecting a slow recovery... even that might be optimistic given that they are forecasting an average growth rate for 2010 of 2.5% and today's estimate came in below that.
This is not a strong report. As Calculated Risk notes above, this won't derail quantitative easing. However, I don't expect another round of quantitative easing to have a large impact on the growth rate of GDP. Thus, while this won't derail QEII the problem is that it won't move fiscal policymakers to action, and fiscal policy is, in my opinion, the best way to help the economy recover faster.
