US 3Q GDP growth surges 7.2%

[Sava]

just like the 80's... big corporations making money while everyone else watches their quality of life go down. I hope this translates into job creation, but the free traders are taking their jobs overseas. Hopefully the public won't fall for the impending GOP PR production that will show Bush is doing whats best for America.

[JohnT]

Yeah, that's the 80's exactly!

How ya been, Sava? Haven't seen you around much.

[Sava]

ehh... bad... I've been trying new types of meds for my depression... thanks for asking JohnT

But yeah, that was the 80's. The GDP grew while incomes for people under $375,000 saw negative growth when adjusted for inflation.

[JohnT]

Sorry to hear about your depression. However, coming back here and arguing about politics and economics seems to be a good sign.

Not at all true. My family had their wealth grow from negative figures to 7 from 1982-1989. A lot of families I know had their wealth grow considerably in that decade. I do know, however, that if you carefully pick your sample and your timeline one can 'most prove anything using statistics.

Appreciate the effort though.

[Sava]

JohnT: I'm glad to hear about your success in the 80's. You were above and beyond everyone else. Look at income levels for the time compared with GDP growth. The general population didn't enjoy the success you had.

[JohnT]

"You were above and beyond everyone else."

Believe it or not, that is my personal philosophy.

[uh Clem]

That was quick.

Consumer spending slips
September pullback came after summer shopping spree

ASSOCIATED PRESS
WASHINGTON, Oct. 31 — Consumers kept a tighter grip on their wallets in September, trimming spending by 0.3 percent after a summertime shopping spree that propelled a third quarter of strong economic growth.

THE LARGEST OVER-THE-MONTH decrease in spending in a year, reported Friday by the Commerce Department, came after consumer spending shot up by 1 percent in July and then another 1.1 percent in August. Consumers spent more lavishly earlier as they began to see the cash from President Bush’s third round of tax cuts.

Economists had said in advance of Friday’s report that the brisk pace of spending — which helped spur a 7.2 percent annual rate of growth in the third quarter — just couldn’t be sustained. They had predicted that shoppers would rein in their finances in September, and they did just that.

[el freako]

Originally posted by DanS

2001 = .3%
2002 = 2.4%
2003 = 4%?

I think 4% for 2003 is wildly optimisitc - to achieve that the US economy would need to grow at an annual rate of 20% in Q4.

3% is much more likely (it requres annualized growth of 4% in Q4)

Originally posted by Fez
This just puts an axe through the argument the democrats had that Bush was bad for the economy. BS. And like they would do a better job... sheesh... 7.2% is much better than anything under the Clinton years.

much better?

Fastest annualized growth quarter-on-quarter during the Clinton presicency:

Q4 1999: 7.1%
Q4 1998: 6.7%
Q1 1998: 6.1%
Q2 1996: 6.8%
Q4 1993: 6.2%

Also the total growth under GWB is much less than during the clinton presidencies:

Q4 1992 to Q4 1996: 13.2% (3.1% at an annual rate)
Q4 1996 to Q4 2000: 16.8% (4.0% at an annual rate)
Q4 2000 to Q4 2004*: 11.3% (2.7% at an annual rate)
*(assuming an average of 4% annualized growth between Q3 2003 and Q4 2004)

But it looks like it's likely to be better than under his father (which, unlike the Clinton presidencies, included a recession):

Q4 1988 to Q4 1992: 8.1% (2.0% at an annual rate)


Much of the rise in Q3 GDP came from consumer spending (although, encouragingly, fixed investment also rose sharply and net exports actually contributed to growth for the first time in ages), but this is unlikely to be repeated as it was mainly due to tax cuts (household after tax income rose at an annual rate of 7.2% whilst pre-tax income rose by only 1.6%)

(source for all statistics: BEA )

[DanS]

I think 4% for 2003 is wildly optimisitc - to achieve that the US economy would need to grow at an annual rate of 20% in Q4.

3% is much more likely (it requres annualized growth of 4% in Q4)

Oops. My bad. I agree on both scores.

[Giancarlo]

Originally posted by uh Clem
That was quick.

Consumer spending slips
September pullback came after summer shopping spree

The market has cool off sometime or another. 7.2% is way too hot of a number.

It will moderate to about 4%.

This still means the demoncrats have nothing as far as the economy goes.

[JohnT]

Point, counterpoint.

Originally posted by uh Clem
That was quick.

Consumer spending slips
September pullback came after summer shopping spree

Flying off the shelves

Some economists think inventory rebuilding could make 4Q GDP look stronger than expected.

October 31, 2003: 12:48 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - As strong as third-quarter GDP growth was, it would have been even more blistering if businesses hadn't cut inventory by billions of dollars -- and some economists believe the fourth-quarter growth rate will be stronger than expected as businesses scramble to restock their shelves.

But other economists worry weak pricing power and improvements in inventory technology will keep a lid on warehouse stocking for a while to come.


The Commerce Department said Thursday that businesses were on a pace in the third quarter to slash inventories by $35.8 billion for the year, accelerating the second quarter's $17.6 billion annual rate.

Slamming the brakes on inventories cut nearly 0.7 percentage point from the third quarter's total gross domestic product (GDP) growth, which clocked in at a net annual rate of 7.2 percent.

But inventories can't fall forever -- once shelves are empty, they're empty -- and many economists believe businesses simply can't operate effectively with empty warehouses.

"Inventories are at rock-bottom levels -- even if economic growth slows in the fourth quarter, those inventories will have to be rebuilt, otherwise businesses risk losing business," said former Federal Reserve economist Wayne Ayers, now chief economist at Fleet Boston Financial.

Still, such rebuilding will likely be cautious, at best -- and it doesn't appear to have begun yet.

For one thing, many goods producers are still having a hard time raising prices, but are paying more for the commodities they use to make stuff. Under such conditions, they've got little incentive to produce a bunch of goods with costly raw materials unless it's absolutely necessary.

"Uncertainty about the pricing environment will keep inventory investment more disappointing than some other economists expect," said David Resler, chief economist at Nomura Securities.

Friday's report from Chicago-region purchasing managers could be a snapshot of this effect in action. The group's "inventories" index plunged in October, posting the biggest one-month decline since April 1977. Meanwhile, the "prices paid" index, a measure of raw material costs, jumped to 61.5, the highest level since 62.8 in March.

What's more, many more companies -- including Wal-Mart, the world's biggest retailer -- are using technological advancements such as "radio frequency identification (RFID)," wireless tags that help track goods, to keep a tight lid on inventories.

The recent decision by the U.S. Department of Defense (DOD) to require its suppliers to move to RFID technology by 2005 will only make the process move faster, according to Mark Roberti, editor of RFID Journal, a Web site that tracks the spread of RFID technology.

"The U.S. military has the largest supply chain on the planet. It purchases military products, clothes, food, drugs and lots of other products," Roberti wrote in a recent editorial. "The DOD will push RFID technology deep into the manufacturing sector."

Still, what's most important to GDP growth is the change in inventories, not the actual level of inventories. As long as companies just stop cutting inventories so much, it will give GDP a boost, as it did in the first quarter of 2002.

In that quarter, inventories shrank at a $30 billion annual pace, but that number was so much friendlier than the fourth quarter of 2001, when inventories shrank at a whopping $98 billion pace, that the relative improvement boosted GDP by 2.6 percentage points -- more than half of that quarter's total GDP gain.

Morgan Stanley chief U.S. economist Richard Berner estimates that simply leaving inventories alone in the fourth quarter could boost GDP by as much as 1.2 percentage points.

Citigroup senior economist Steven Weiting is expecting a similar impact, of about 1 percentage point, which could push total GDP growth above the Wall Street consensus estimate, according to the latest Blue Chip forecast, of 3.7 percent.

"We expect a drop in inventories in the fourth quarter," but at only about a $5 billion pace as opposed to the third quarter's $36 billion pace, Weiting said. "That's a big difference. What's important is the change in the change."

[el freako]

Fez, do you expect the US household sector to return to the savings rates of 1955-95 or do you expect them to continue to spend beyond their means?