10/31/09 Stockholm, Sweden – It’s true, the 3.5 percent third quarter GDP growth could be a sign of good things to come… but most likely that’s not the case. Brian Sullivan of FBN has put together five reasons why the US is not recovering.
1. The money lost on stimulus spending – The 3.5 percent growth in GDP is roughly equal to an additional $112 billion dollars in output quarter-over-quarter, but we spent $173 billion on stimulus over that same period. Basically, GDP gained about 65 cents for every dollar spent on stimulus, not exactly a win.
2. The weak job market – In October the total number of people filing for some kind of unemployment rose to over 10 million for the first time in history, and no new jobs are replacing the ones that are lost.
3. Consumption is only up because of incentives – Cash for Clunkers, tax credits on energy efficient goods, and other programs have only temporarily goosed shopping. US consumer spending has already fallen again in September… for the first time in five months and by the largest amount in nine.
4. Housing tax credits – The National Association of Realtors says nearly half of the increase in home sales this year was due to tax credit. Unfortunately, the credit cost about $30 billion to execute and only generated about $11.6 billion in tax revenue. Roughly speaking, about three dollars were spent for every dollar brought in.
5. The weak dollar – Two notable problems here. First, foreign countries have been able to cheaply borrow the weak dollar in order to finance useful capital projects in places far away from the US. Second, the Chinese yuan’s dollar peg causes it to weaken when the dollar does. This means that China keeps its cost advantages and the US fails to see increased exports.
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The economy is bound to be rough for some time to come. See these five points in their original context and with more details in Fox Business News’ coverage of the GDP jump that isn’t what it seems.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
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