Third Quarter GDP Growth Figures Are Meaningless: Why The U.S. Remains In Recession
As if on cue, the Dow Jones index soared to the skies in sequence with the Commerce Department’s triumphant announcement that the third quarter GDP growth in the United States was a robust 3.5 %. After 4 consecutive quarters of economic contraction, the pronouncement that the American economy was now growing, and at a stronger rate than many experts had forecasted, the cheerleaders on Wall Street are celebrating the end of the recession. Hallelujah, the Great Recession is over, the stimulus package has worked!
Not so fast.
Let us journey back into recent history of just over one year ago. It is August 28, 2008 and the Commerce Department has just released its revised growth figures for the second quarter of 2008. It turned out, according to the statisticians at the Commerce Department, that the American economy grew at a much faster pace than originally reported. The revised Q2 GDP growth figure for 2008 was 3.3%, nearly identical with the Q3 figures now being reported in 2009. The pundits rejoiced at this magnificent economic news, proclaiming that these numbers reflected the success of the $150 billion deficit-driven stimulus package approved by Congress at the beginning of the year. Analysts proclaimed that the impressive growth figures for Q2 of 2008 meant that the U.S. economy had dodged a bullet, and thanks to loose fiscal and monetary measures, there would be no recession.
Two weeks after the release of the revised and supremely optimistic quarterly growth figures by the Commerce Department, Lehman Brothers went bankrupt, the global financial system went into cardiac arrest and a synchronized recession struck virtually every economy on the face of the earth.
Before celebrating the glorious Q3 numbers for the U.S. economy, I recommend that prudent observers reflect on the massive levels of public indebtedness required to create the accounting metrics that can demonstrate economic growth simultaneously with the devastation of the real economy and continuing increases in an already staggeringly high level of unemployment. Furthermore, digest the reality that car sales generated by the recent “cash for clunkers” program contributed nearly 1.7% of the 3.5% growth in GDP in Q3. Then, looking at the recent history referred to above, ask the hard questions on how sustainable the trajectory suggested by the third quarter numbers really is.
In my view, the 3.5% Q3 numbers of 2009 are as reliable an indicator of future economic growth as were the 3.3% GDP growth figures in 2008. As George Santayana stated, those who forget the past are condemned to repeat it.
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