Third Quarter GDP Rises to 3.5%… But…

October 29, 2009 by Jeff · Leave a Comment
Filed under: Economy, Politics 

From Reuters:

The U.S. economy grew in the third quarter for the first time in more than a year as government stimulus helped lift consumer spending and home building, fueling an unexpectedly strong advance.

Signaling the end of the worst recession in 70 years, the Commerce Department on Thursday said the economy expanded at an annual rate of 3.5 percent in the July-September period, snapping four down quarters with its fastest growth pace since the third quarter of 2007 and exceeding forecasts for a 3.3 percent rate.

The good new is that the U.S. economy has stopped shrinking, the bad news is that all the growth was driven by emergency government programs like Cash for Clunkers and the $8000.00 first time home buyer tax credit. As Reuters Political Risk bloger James Pethokoukis points out when you strip out Cash for Clunkers 3rd quarter GDP was just 1.6 percent. If you  also strip out the slowing inventory cuts GDP was just 0.6 percent.

The bottom line is this, when you add in the sharp drop in new home sales and the barely there dip in first time jobless claims last week, the economy may be improving but has yet to turn the corner in any meaningful way. These numbers may be enough to make the Obama Administration look good for the next three months, but if they don’t stop these gimmicky programs and do something to spur real investment and create sustainable long term growth we’re headed for a double dip recession that they won’t be able to blame on the Bush Administration.

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