Nothing's Over: The Top Reason GDP Does Not Show Recovery

In order to juice the US into recovery the economy has been stimulated all over the place. The mainstream media is wild with cheerleading that the 3.5 percent third quarter GDP growth is a sign that the day is saved. Is it? No.

The single clearest reason the GDP figure is hugely misleading is the Cash for Clunkers program. That particular government hand out caused motor vehicle output to spike almost 160 percent when compared to last quarter. That’s easily the highest quarter over quarter change since at least before 1979, and it stands out as an enormous anomaly.

Without the massive boost provided by Cash for Clunkers, GDP growth would have been only 1.89 percent. Not only is the motor vehicle output number likely to be much lower next quarter, but it also has the potential to turn negative. A negative motor vehicle output could devastate next quarter’s GDP figure, and it could make for a very brief recovery.

This data goes to show that future demand has been successfully pulled into the present. However, this “success” has effectively wiped out hopes for a genuinely improving economy in the near term.

The motor vehicle output data is from the Bureau of Economic Analysis (BEA) by way of an informative chart and analysis from Clusterstock on how Cash for Clunkers massively distorted GDP.

The Daily Reckoning