American economy exhibits unhealthy zombie look
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.