American economy exhibits unhealthy zombie look

October 29, 2010

The American economy is exhibiting an unhealthy zombie glow. Third-quarter GDP numbers, released just before the Halloween weekend, suggest worrisome imbalances rising again. The gain in real GDP was about equal to the growth in net imports and exceeded by the rise in inventories. Consumption was solid but government spending rose sharply as the savings rate fell. It’s not an altogether pretty picture.

In a well-balanced economy, consumption grows in tandem with overall GDP, with savings adequate to finance investment. Moreover, government spending growth is restrained, while inventories grow only as fast as consumption and the balance of payments deficit remains under control.

That’s not what the Bureau of Economic Analysis’s advance GDP report showed. Inventory growth was $116 billion compared to overall GDP’s real growth of $66 billion. In other words, the country is producing more stuff, but letting more of it pile up. Real final sales grew only 0.6 percent, and that growth was exceeded by a surge in imports.

Consumption growth was moderate, and while fixed investment grew marginally it was held down by a fall in housing investment after the April end of the home-buyer subsidies. In the meantime government spending grew rapidly, worsening an already unsustainable deficit, while the already inadequate savings rate declined.

America’s economic imbalances stem from over-expansive monetary and fiscal policies. With real interest rates negative and the government spending more than it takes in, savings are discouraged, imports surge and both raw and finished goods are stockpiled as commodity prices surge. Further quantitative easing by the Fed next week may exacerbate the problem.

Sure, some growth is better than a contraction. But the imbalances of inadequate savings, excessive imports and rising budget deficit all worsened in the quarter, and were joined by a bloating of inventories. That doesn’t signify an economy in good health and ripe for stock market investment. Rather it suggests that those entrusting their savings to the U.S. economy will find them eaten by the zombie lurking inside this feeble recovery.

Comments

Excellent analysis.

Sadly, these days the US is not exactly an emerging market.

Posted by yr2009 | Report as abusive
 

Just goes to prove what I’ve been saying for years. Americans blow as much of their income as possible on cheap, foreign, slave-labor made goods. Well some of it isn’t so cheap, but it’s still made by foreign slave-labor (Apple iPod,iPad,iFad!!!)

These numbers show that Americans who still have jobs will soon lose them because they are producing stuff that isn’t selling and they’re taking their pay-checks straight to Walmart to buy as much Made-In-China as they get their sweaty mitts on.

Posted by fwupow | Report as abusive
 

This is a factual analysis of the US market as ripe for investment or perhaps divestment to put in it’s starkest terms.

The life is drained from what many know to be a product with an expiration date stamped on it’s forehead. The dollar, despite a run for the money that still invokes a tearful if not regretful retrospective of good times that seemed to ebb and flow on metrics of trade more esoteric than substantive and certainly spookier than not in terms of real value traded for real currency.

What happen when Helicopter Ben is fueling the presses with coloured paper as fast as his aging spine can tolerate while the White House is spending these hot dollars like hot cakes right out of the oven and into the oven, where’s the love in that way of life, we are all asking and the answer is a screwed up look in the mirror at Ann Rand through Joan of ark’s rose colored glasses, a kind of Salvador Dali dollar is emerging from the mists if the market and this fleeing of fortune to better returns is epic and foreboding if ever there was such and Ichabod Crane day of reckoning, we are indeed upon it today.

Dali’s stairs go nowhere but in circles, are we or are we not supposed to be real here in this life? Just do it from the subconscious minds eye’s new world view, means the reigns are lost we are now carreening down an embankment with no control…cassandra and Delphi are shaken and torn no respite comes now…

Posted by jerrygates7 | Report as abusive
 

Crunch time will come.

Posted by greenacres | Report as abusive
 

Consumption is not something to be desired in a country. People have needs, but just buying extra things for the sake of company profits is not healthy as it normally raises debts. In a healthy country at least 30 to 40 percent of the houses, farms and businesses should be paid for with operating capital in the bank. This allows stability and can handle most any downturn. We got too far afield with the leveraged buying and that is what cooked the goose. We don’t even have any one of you common taters expaining the right way to work it.

Posted by fred5407 | Report as abusive
 

Printing money which finds its way to lucrative investments in emerging markets and commodities is only a very temporary line of defence against deflation, if at all? The resulting weaker dollar will import inflation which is like a tax and will further depress core inflation as people spend less with the less money they have.
Rotten bank balance sheeets, insufficient household savings, out of control govt debt means there is no sustainable spending power left.
Supposedly the lower dollar will make US exports more competitive but at the expense of emerging economies themselves who are the targets for the US exports as they are the only ones with spending power left. As they only account for 20% of total worldwide spending it will be a slow slow process as they themselves will face competition from US products, thereby slowing them down. Deflation is here to stay whatever gimmicks the Fed plays.

Posted by shivers1 | Report as abusive
 

America’s back is being broken by the burden of a military-industrial complex that is out of control.

America’s military budget exceeds the military budgets of all other nations on earth combined. Are we insane?

The fast rising economies, like Brazil, Russia, India and China have tiny, tiny military budgets, completely dwarfed by US military costs.

We are in a race, a marathon, and America is carrying a 40 pound cement block under each arm. It can only lose.

Posted by AdamSmith | Report as abusive
 

Just goes to show that the private sector can only take so much “baggage” from our government. Leave business alone and unbridle the “horses” and our economy will thrive once again. But our government won’t do that. It’s got too many mouths to feed on the government payroll. Nice to know my tax dollars are going to some other “needy” government employee’s family.

Posted by Keno | Report as abusive
 

America’s back is being broken by the burden of a military-industrial complex that is out of control.

America’s military budget exceeds the military budgets of all other nations on earth combined. Are we insane?

The fast rising economies, like Brazil, Russia, India and China have tiny, tiny military budgets, completely dwarfed by US military costs.

We are in a race, a marathon, and America is carrying a 40 pound cement block under each arm. It can only lose.

Posted by AdamSmith | Report as abusive
 

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