Today’s gross domestic product report shows an economy that continues to muddle along. While there’s no imminent threat of recession, there’s no evidence of a robust recovery either.
GDP grew at a rate of 2 percent in the third quarter of the year, compared with a rate of 1.3 percent in the second quarter. As a result, unemployment has remained high , and jobs have been added at a slow pace. So far this year, employment growth has averaged just 146,000 a month, down from 153,000 in 2011.
It is a rough rule of thumb that more than 2.5 percent of GDP growth is needed for several quarters to experience meaningful job growth.
GDP SINCE THE START OF THE RECESSION IN DECEMBER 2007:
The economy has now seen 13 straight quarters of GDP growth.
The good news:
- Consumer spending, which accounts for two-thirds of the economy, rose at a seasonally adjusted annual rate of 2 percent, compared with 1.5 percent in the second quarter. This is linked in part to the recovery in housing — people feel wealthier as the value of their homes increases. The refinancing surge also put more money in people’s pockets.
- Housing sector, quite a change from not that long ago, when this was a major drag on GDP. Residential investment increased at an annual rate of 14.4 percent in the third quarter, versus 8.5 percent in the second quarter.
The bad news:
- Business investment fell by 1.3 percent, the first quarterly decline since the recession ended, suggesting that businesses are putting projects on hold. Economists warn that growth could slow in the final quarter of the year if weakness in exports persists and businesses remain cautious because of fiscal uncertainty in Washington.
- Exports. The weak global economy meant that falling exports cut 0.2 percent from GDP growth. It was the first time exports had fallen since the first quarter of 2009, when the global economy was reeling from the collapse of Lehman Brothers and the ensuing financial crisis in the United States.
- Government spending increased thanks to a 13 percent jump in defense spending. Economist Diane Swonk says that the defense spending increase is linked to the drawdown in Afghanistan and even Iraq, since most of the expenditure was on services and maintenance.
- The Midwest drought was a drag on today’s report, taking 0.4 percent from overall growth. This could end up being a temporary factor if drought conditions continue to diminish.
Alan Krueger, for the White House
Today’s report shows that the economy posted its 13th straight quarter of positive growth, as real GDP (the total amount of goods and services produced in the country) grew at a 2 percent annual rate in the third quarter of this year, according to the “advance” estimate released by the Bureau of Economic Analysis. Over the past 13 quarters, the economy has expanded by 7.2 percent overall, and the private components of GDP have grown by 10.1 percent. While we have more work to do, together with other economic indicators, this report provides further evidence that the economy is moving in the right direction.
It is important to recognize that GDP is made up of various components. Personal consumption expenditures, for example, increased by 2 percent at an annual rate in 2012: Q3, as compared with 1.5 percent in the previous quarter. Residential investment increased by 14.4 percent last quarter and has increased for six quarters in a row, its longest streak since 2004-2005. Federal defense spending rose 13 percent, federal nondefense spending rose 3 percent, and state and local government purchases were essentially unchanged. The severe drought, which has affected more than half of the country, subtracted 0.4 percentage point from overall GDP growth.
To strengthen economic growth and increase job creation, President Obama has proposed to Congress a plan that would help state and local governments retain and hire teachers and first responders, would assist the construction sector and economy of tomorrow by rebuilding and modernizing the nation’s infrastructure, and would give small businesses tax cuts to encourage them to increase payroll. President Obama also proposed extending tax cuts to protect middle-class families and virtually every small business owner from getting a tax increase at the beginning of next year. Extending these tax cuts would provide more certainty for the economy for 98 percent of American families and 97 percent of small-business owners.
Mitt Romney paper statement
“Today, we received the latest round of discouraging economic news: Last quarter, our economy grew at only 2 percent, less than half the 4.3 percent rate the White House projected after passing the stimulus bill. Slow economic growth means slow job growth and declining take-home pay. This is what four years of President Obama’s policies have produced. Americans are ready for change — for growth, for jobs, for higher take-home pay. Paul Ryan and I will deliver it.”