American consumer holding back recovery -- and that's a good thing
Today's downward revision of third-quarter GDP from 3.5 percent to 2.8 percent, slightly less than forecasters predicted, was directly caused by consumers refusing to spend.
And for now, that's a good thing.
Consumer spending accounts for about 70 percent of U.S. GDP. The U.S. officially came out of the Great Recession (which began in December 2007) in the third quarter of this year, when GDP turned positive, hitting a preliminary estimate of 3.5 percent growth.
The turnaround was hailed by those who backed the taxpayer-funded stimulus programs as proof that a strong recovery was underway, boosted by government spending, in true Keynesian style.
But hold on a second, today's data say.
The revision to quarterly GDP -- part of the process each quarter -- provides a more solid estimate of the quarter's GDP. At 2.8 percent instead of the first-reported 3.5 percent, it means consumers spent less during the previous quarter than the government initially thought.
Overall consumer spending in the quarter rose 2.9 percent, not 3.4 percent as originally estimated.
In September, the third month of the third quarter, spending was down 0.5 percent from the same period the year before.
Consumer spending on homes jumped 19.5 percent in the quarter, but that number was lower than the 23.4 percent reported in the first swipe at third-quarter GDP.
Durable-goods spending (cars, refrigerators, the like) was up 20.1 percent in the quarter, not 22.3 percent, as first estimated.
Businesses did not fare as well in the quarter as initially thought. The first estimate on GDP showed that commercial construction was cut 9 percent in the quarter. Today's number shows it was actually cut at a 15.1 percent annualized rate.
And don't hold out hope that holiday spending is going to rescue the fourth quarter. An Associated Press-GfK poll released earlier this week said that 93 percent of us say we'll spend the same or less this holiday season that we did last year.
The takeaway from all of this is two-fold:
a) The government stimulus didn't goose the economy as much as predicted/hoped by some/originally forecast. This is not a surprise, because any time you set a limit on cash infusion -- be it an overall figure of $787 billion, a one-month limit on Cash for Clunkers, whatever -- it sets a ceiling on growth. Only an open-ended, ongoing, market-fueled cash infusion creates unlimited ceiling.
b) Consumers spending less is a good thing. First, it would be a negative reinforcement if people (especially lawmakers) began to believe that government stimulus is the key to economic prosperity. Secondly, it means that consumers are keeping their wallets closed for a change.
September personal saving among Americans rose to $355.6 billion from $307 billion in August, according to the Bureau of Economic Analysis at the Commerce Department, a jump in rate from 2.8 percent to 3.5 percent. This recovery will be more real and long-lasting if people save more and spend less, even though it might translate to a 2.5 percent growth in GDP instead of a headline-grabbing 3.5 percent.
Which only ends up having to be revised downward, anyway.
-- Frank Ahrens
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November 24, 2009; 2:30 PM ET
Categories: The Ticker | Tags: Bureau of Economic Analysis, GDP, consumer confidence, consumer spending
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