3rd quarter GDP 2.8%, not 3.5%

The Commerce Department revised its third-quarter economy estimation sharply downward today, from the previously announced 3.5% annualized growth to 2.8% instead.  That number would still be the best quarter in almost two years, but as the AP notes, it’s almost entirely comprised of short-term government stimulus:

The economy grew at a 2.8 percent pace last quarter, as the recovery got off to a slower start than first thought.

The Commerce Department’s new reading on gross domestic product wasn’t as energetic as the 3.5 percent growth rate for the July-September period estimated just a month ago.

The main factors behind the downgrade: consumers didn’t spend as much, commercial construction was weaker and the nation’s trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.

The new reading on GDP, which measures the value of all goods and services produced in the United States — from machinery to manicures — was a tad weaker than the 2.9 percent growth rate economists surveyed by Thomson Reuters had expected.

Jim Geraghty points out one big set of numbers that changed:

The revised numbers out today indicate that automotive consumption was less than half initially estimated, contributing 0.81 of percentage point to growth. The overall quarterly growth number was revised from 3.5 percent to 2.8 percent.

The White House had pointed to the original number of 1.7% as an indicator of the success of Cash for Clunkers. Now it looks as though they overestimated that number as well, which auto analyst Edmunds.com had stated. For speaking a little truth to power, the Obama administration went to war with Edmunds, a war they lost in the first exchange and have completely lost today.

Meanwhile, the AP does its best to spin the news as much as it possibly can:

Even with the downward revisions, it was notable that such spending grew, after falling in the previous quarter.

But they do manage to ask the correct question, albeit halfway through their article:

What’s not clear is whether the recovery can continue after government supports are gone.

Answer: no, at least not in isolation. In order to get a true recovery, which depends on consumer confidence and spending, the US needs to get the job-creation engine going. That won’t happen while the Obama administration and the Democrats send signals of massive tax increases and energy cost hikes with their expansionist, statist agenda. Investors will stay on the sidelines and shelter their money for the monsoon season of rainy days they see when Obama has to start paying for all of his ambitious programs.

It’s not “notable” that a couple of short-term stimulus programs spiked consumption in two narrow — but politically visible — categories. In fact, a more cynical person would conclude that Obama wanted one good report on GDP in order to push his complete agenda through Congress without people questioning its cost. Unfortunately, the timing failed, and even the artificial spike wasn’t nearly as high as Obama and his team initially claimed. What will be “notable” is what happens when the artificial stimuli disappear and jobs don’t reappear.

Jazz Shaw May 24, 2022 7:58 AM ET