Posted on 11/01/2009 1:54:52 PM PST by NaturalBornConservative
Source: Trade and Taxes
Raymond L. Richman
The U.S. Bureau of Economic Analysis issued a misleading report when it announced October 29, 2009, that annualized Gross Domestic Product, measured in 2005 prices, increased 3.5 percent from the 2nd quarter 2009 to the 3rd Quarter of 2009. The fact is that annualized GDP in the 3rd quarter was $13,014 billion compared with $12,901 in the 2nd quarter , an increase of 0.872, less than one percent. The number, 3½ , asserted by the BEA was obtained by multiplying 0.872 by 4, in other words by extrapolating the rate of increase in the 3rd quarter for three additional future quarters, hardly a scientific way of prediction . What is worse, analysis of the data indicates no reason to expect any future growth of the economy at all.
Net private non-residential investment, the key to a growing economy, declined in the 3rd quarter. So did net exports. Exports increased but imports increased even more, resulting in a drag on the economy. Personal Consumption increased but that was due principally to a non-recurring factor, the “klunkers” rebate, a costly exercise in subsidized consumption which did more economic harm than good. We already have evidence that it was at the expense of sales in the succeeding period. Thus, it will contribute to a decline in the current quarter. And it will no doubt have a negative effect on auto repairs and maintenance expenditures. Although the administration claimed that it was intended as a stimulus to the economy, it was done at the urging of environmentalists wanting to reduce carbon emissions in the atmosphere. Personal Consumption may increase in the future but there was nothing in the 3rd quarter data to give any assurance that it will.
Personal consumption may grow if expectations about the future of the economy improve. Unfortunately, the data do not lend to the expectation of the economy’s growth. The real growth of the economy is dependent on fixed private investment. Private non-residential fixed investment fell, -1.88 percent in current dollars and -.636 percent in 2005 dollars. Multiply those by four!
The other principal contributor to economic growth is positive net exports. While exports of goods rose 4.65 percent in current dollars and 3.49 percent in 2005 dollars, imports increased faster, 6.43 percent and 3.86 percent respectively. This occurred in spite of a falling dollar which is supposed to increase exports and reduce imports. Multiply those numbers by four, too!
For years we have been warning that the growing trade deficits of the U.S. were a threat to the health of the U.S. economy. It caused the loss of millions of industrial jobs, depressed wages as the laid off industrial workers sought jobs in the service sector, and worsened the American distribution of income. It is urgent that we get trade into reasonable balance. If we succeed, the economy has a chance of recovering quickly because it would stimulate private investment , growth, and employment. These and other measures appear in our book, Trading Away Our Future (2008), which deals with the causes of and cures for the trade deficits.
The stock markets boomed on the news that GDP had grown at an annual rate of 3.5 percent. Pres. Obama and Dr. Romer, Chairwoman of the President’s Council of Economic Advisors, repeated the number. The latter should have known better. What should have been reported is that in the third quarter GDP rose, compared with the 2nd quarter, 1.06 percent in current dollars and 0.87 percent in 2005 dollars. The next day, after investors had time to read the release and the accompanying tables, the stock markets collapsed.
We have great respect for the Bureau of Economic Analysis and their statistical methods. But the extrapolation of the rate of growth into the future serves no purpose and adds nothing to the data and should be abandoned.
This outfit in the White House has been lying through their teeth. In fact every time they open their mouth you have to question whether it is true or not.
If you want to give them as an actual rate, then the decline in the economy for the past several quarters was only a fourth of what has been stated.
I originally understood this to be an annual rate.
I also understood it to be a fluke.
It will also be difficult for Obama to blame the economy on Bush with any credibility to anyone anymore.
Annualizing growth rates is perfectly standard procedure in reporting such things. If economically illiterate reporters don’t say (as is correct) “the GDP grew at an annualized rate of 3.5% in the 3rd quarter” blame illiteracy.
The more serious critique is measured in anything other than dollars (gold, yen, Euros, for sure, heck probably even rubles or Turkish lira) the economy continued to contract—the ‘expansion’ is due to inflation created by printing money, and does not represent a real recovery at all.
So tricky!
According to the Shadow Government Statistics, the actual “growth” rate was -5.87. I trust his numbers more than anyone’s. He has always been right on.
New Math...Obama Style.
Part of the "Change"
big old reference PING
-5.87%? I’d say he’s being generous: during Q3 2009, the dollar declined from about 93 yen to about 90 yen, taking the nominal dollar growth in the GDP of 3.5% annualized (0.875%
during the quarter) and computing it in yen, one gets an annualized U.S. GDP growth rate (in yen) of about -9.5% during Q3 2009.
True the numbers are always released as an annualized rate along with the actual change in percentage from the previous quarter, however, it is being spun by the media and Obama as though the economy grew at 3.5% during the 3rd quarter. It needs to be stated both ways, the actual growth or decline for the quarter and the annualized rate. I detest the spin.
I understood the number to be an annualized rate, but then I follow such things. You may be correct that Zero and his supporters are trying to spin it as a 3.5% increase in the third quarter. I certainly wouldn't put it past them.
It won't matter in the end, though, as most of the increase is "borrowed" from the future through the "cash for clunkers" and first time home buyers programs. I sincerely doubt that there will be any follow through in the fourth quarter.
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