Losing the 3 handle on GDP

November 24, 2009

The downwardly revised 3rd quarter GDP certainly didn’t shock economists who were expecting a softer reading than the initial 3.5 percent, but the 2.8 percent certainly isn’t pretty especially considering the psychological blow of losing of the 3 handle. (Speaking of symbolic numbers, the FDIC also reported that its reserve fund is now in the red.) There’s still one more revision ahead though, so maybe it will inch back to 3 percent.

Weaker consumer spending – up 2.9 percent versus the originally estimated 3.4 percent – isn’t exactly encouraging since the recovery needs the nation’s shoppers to quicken the pace a little if the economy has any hope of picking up steam. And remember, the “cash for clunkers” program was a big contributor to the gain. It’s also no surprise that government expenditures helped at least partially offset the decline. Such spending increased 3.1% from the original estimate of 2.3%.

Alan Ruskin at RBS notes that at least corporate profits are strong at +10.6 percent. But, increased productivity is the cost. Companies are doing more with less, a phrase that those still holding their jobs detest and those without jobs dread.

Consumer confidence, meanwhile, ticked up slightly but still reflects a sour mood on Main Street.

Lynn Franco at the Conference Board, the group that compiled the survey released Tuesday, says it all.

Consumer Confidence posted a slight gain in November. The Present Situation Index, however, was virtually unchanged and remains at levels not seen in 26 years (Index 17.5, Feb. 1983). The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve. Income expectations remain very pessimistic and consumers are entering the holiday season in a very frugal mood.

The Wall Street Journal’s front page splash that 1 in 4 homeowners owe more than their homes are worth underscores the point that the U.S. households are still in bad shape and the rapid fire gains in the stock market aren’t likely to offset fear of losing your job and house.

It’s no wonder policy makers are starting to get nervous about pulling the plug on stimulus.

No comments so far

Comments are closed.