Tuesday, November 3, 2009

GDP grows by 3.5%, what it really means

The Q3 2009 GDP grew by 3.5% and Ford Motor Company posted a $1 billion profit. By those indications alone, the economy ought to be showing more signs of positive growth, but it isn’t…and there are a plethora of economic indicators that the downturn isn’t over yet.

Over the past year, the economy has contracted 2.3%. The economy declined 0.7% annualized in the Q2 and 6.4% in the Q1 (the figures are seasonally adjusted and adjusted for price changes). Personal income shrank $15.5 billion (0.5 percent), while real disposable personal income fell 3.4 percent, dissimilarity to a rise of 3.8% last quarter. All of which are nothing short of horrible numbers.

When measured in real numbers, the decrease in personal income fell -0.5% in Q3. Disposable personal income fell -0.7%, but, personal outlays rose +5.8% while personal savings rates dropped to +3.3%. In other words, while consumers were spending more, they were saving less, which is one of the chief reasons for the current downturn.

All of this, not to mention business investments weakened as a small swell in capital spending on equipment and software was beleaguered by another huge plunge in investment structures.

So why the 3.5% growth? The GDP is measured by five factors: private consumption + gross investment + government spending + (exports − imports).

And government spending is where you’ll find a good part of the positive numbers: as government spending rose at 7.9% in Q3, an erroneous Cash-for-Clunkers added a one-time contribution of about 1.7% points (auto sales have since shrunken, so all the program did is shift some demand frontward).

Posting its results late last week at Recovery.gov, the White House asserted 640,329 jobs have been “created or saved” because of the $160 billion in stimulus funds allocated as of Sept. 30. Other figures have estimated the number of saved jobs to be closer or just above 1 million. If that is true, then as ABC reports, the math doesn’t add up – $160 billion divided by 1 million equals a cost to taxpayers of $160,000 per job – not exactly fiscally palatable.

Jared Bernstein, chief economist and senior economic advisor to Vice President Biden, called ABC’s run of the numbers, "calculator abuse”. He added that the cost per job was actually $92,000 – but conceded that approximation is for the entire stimulus package as of the end of 2010.

-- Killswitch Politick

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