FRONT PAGE CONTRIBUTOR
Government Spending Inflates GDP Report
The Bureau of Economic Analysis published its report for 3rd quarter GDP and found that the economy is growing at a mediocre 2.0% rate, a slight improvement of the 1.3% growth in the 2nd quarter. Had we not experienced such a deep recession, this number would not concern us. However, in order to recover from such a deep recession we need consistent growth of 4% and some quarters of 5-6% growth.
During the Reagan recovery, there were some quarters when we were growing by 8-9%. Overall, the economy has grown by an average of 1.77% in 2012. Overall, since 2009, the economy has grown by the slowest rate of any recovery in the post-World War II period.
Moreover, the 2% number does not tell the whole story. As is the case with any economic report, you must drill down into the numbers. GDP is comprised of four components, one of which doesn’t belong in the equation – government expenditures. Here is the breakdown of the GDP report:
Personal Consumption: Up 2.0% compared to 1.5% in the second quarter
Gross Investment: Down1.3% in the third quarter, in contrast to an
increase of 3.6% in the second.
Government Expenditures: Real exports of goods and services decreased 1.6 percent in the third quarter, in contrast to an increase of 5.3 percent in the second.
Net Exports: Real federal government consumption expenditures and gross investment increased 9.6 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second.
As you can see, the only good part of the 0.7% increase in GDP growth since the second quarter comes exclusively from the jump in consumer spending. The rest comes from a massive uptick in government expenditures. Additionally, business investment and exports are actually down as compared to the second quarter. If we disregard the growth in gov’t expenditures, GDP only grew by roughly 1.6%.
The fiscal cliff, Obamacare, Dodd-Frank, and the insane regulatory burden are all forcing businesses to sit on their capital, precluding any real job creation. In fact, to the extent that this GDP report shows an uptick in economic activity, it is in the form of more government and consumer debt.
It’s also important to note that while GDP has grown at a 1.77% annual rate this year, the debt has increased by 7.3%. Current dollar GDP stands at $15.775 trillion; gross federal debt stands at $16.194 trillion.
Finally, how likely is it that the topline number will be revised down in November?