Almost two months ago, the Commerce Department cheered the announcement that the third quarter GDP had grown at an annualized rate of 3.5%. The Obama administration hailed it as a sign that their economic policies had spurred real growth. Even when Commerce sharply revised the number downward a month later to 2.8%, the White House continued to argue that the lower number still meant that the US had turned the corner, even after a number of critics asked how Commerce could have missed the number so widely.
Today, Commerce backtracked even further. The annualized growth number for Q3 turns out to have been 2.2%, a revision of over a third from its original estimate two months ago:
The U.S. economy grew at a much slower pace than initially thought in the third quarter, restrained by weak business investment and a slightly more aggressive liquidation of inventories, according to data on Tuesday.
The Commerce Department’s final estimate showed gross domestic product grew at a 2.2 percent annual rate instead of the 2.8 percent pace it reported last month. Analysts polled by Reuters had forecast the report to show GDP, which measures total goods and services output within U.S. borders, unrevised at a 2.8 percent growth rate in the third quarter. …
Growth was boosted by government stimulus programs, including the popular cash for clunkers and tax credit for first-time home buyers, and debate continues to rage over the sustainability of the recovery once government support wanes.
No kidding. The Cash for Clunkers program and the first-time homebuyer tax credit was estimated to have contributed as much as half of the original Commerce estimate of 3.5%. Assuming that to still have contributed at least 1.5% of the final GDP, that leaves a rather pathetic 0.7% growth in Q3 without it. It’s barely a recovery at that level.
What changed? Commerce revised some other base numbers. Business investment, a key indicator of recovery, fell 5.9% instead of the previously reported 4.1%. Nonresidential construction was worse than first thought, which shows how much that tax credit impacted the residential construction market. Even the good news wasn’t quite as good as first thought. Consumer spending rose 2.8% instead of 2.9%, much of that from the Clunkers program and the tax credit.
The third-quarter growth looks a lot more anemic than advertised by the Obama administration, especially when one considers the gimmicks that temporarily boosted its performance. Most troubling is Commerce’s poor performance in analyzing economic conditions. If they’re so incompetent as to miss this figure by 37% (1.3 from 3.5 is slightly over 37%), then clearly they need some fresh talent. If they got pressured into stating overly cheerful numbers, it’s something else entirely. That would be something Congress should investigate … if we had an independent Congress at all.