If Democrats hoped for a splashy third-quarter GDP number to shake them from their midterm doldrums, the Commerce Department has disappointed them today. Their initial estimate of the US economy in the third quarter of 2010, the fifth quarter for the current recovery, straggled in at an anemic 2.0%, barely above the final 1.7% from the preceding quarter. And if this gets revised downward in four weeks, the brunt of it will fall not on departing Democrats in Congress but Barack Obama:
U.S. economic growth edged up as expected in the third quarter but not enough to chip away at high unemployment or change perceptions of more monetary easing from the Federal Reserve next week.
Gross domestic product expanded at a 2.0 percent annual rate as consumer spending rose at its quickest pace since 2006 and businesses continued to rebuild inventories, the CommerceDepartment said on Friday. The economy expanded at a 1.7 percent rate in the second quarter and third-quarter growth matched economists’ expectations.
“Growth is still positive, but a bit disappointing. It’s not where we would like it to be at this point of the recovery,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
Actually, 2.0% isn’t where anyone wants to be at any point in a recovery. It’s a measure that indicates economic stagnation. That kind of growth not only won’t create jobs, it will make it difficult to prevent further erosion in employment.
The good news from the report was that consumer spending started rising again. Last quarter, it went up 2.2%; this quarter, it rose 2.6%, the best in four years, and perhaps a signal that the upcoming holiday season may be a little brighter than the last two. However, most of the demand went to imports rather than domestically produced goods, which means much less impact on hiring, manufacturing, and so on.
And in some potentially bad news disguised as good, business inventories rose at almost twice the level as last quarter. That means that businesses may be anticipating a rise in demand. If it doesn’t happen, though, then expect these numbers to drop sharply in the next quarter. Spending on business infrastructure (equipment and software) slowed from last quarter as well.
This is the last opportunity Democrats had to defend themselves on the economy, and clearly this gives further ammunition to Republicans instead.