The economy perked up a bit in the third quarter, but not so much as earlier government reports had indicated. In fact, the Commerce Department’s Bureau of Economic Analysis just revised the growth estimate downward for the second time. What started out as an annualized rate of 3.5% is now down to 2.2%. This report from MarketWatch gives more detail [emphasis added]:
U.S. GDP up 2.2% in third quarter, revised lower (MarketWatch, Dec. 22, 2009, Rex Nutting)
Third-quarter GDP was originally estimated two months ago at a 3.5% annualized rate but was revised down to 2.8% growth in last month’s estimate. The revisions come from more complete data than was available at the first and second estimates.
The 2.2% revised growth rate is the strongest since the third quarter of 2007, just before the recession began.
Normally, after coming out of a severe recession, the economy would take off and we would see growth in the range of an annualized rate of 5% or even more. We may be getting something approaching that in fourth quarter, but that remains to be seen. MW continues:
Still, economists surveyed by MarketWatch had been expecting only a minor revision to 2.7% in the third estimate…
Economists are forecasting stronger growth — about 4% on an annualized basis — in the fourth quarter ending Dec. 31. They also see annualized growth of about 3% in the first half of 2010…
But wait. There’s more…and it gets worse. Much of the growth was due to a single event. What could that be? The BEA report spells out this disturbing news:
Motor vehicle output added 1.45 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change…
Let’s see what could have caused motor vehicle output to soar?
Source: Clusterstock
However, that little Cash for Clunkers stimulus program is done and I suspect automotive output is back to a more normal run rate.
So, if we take away the BEA’s estimate of auto contribution of 1.45%, well that knocks down the actual economic growth rate a bit doesn’t it?
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Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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