The green shoots of recovery are growing a little taller. Newly released gross domestic product estimates measuring consumer and government spending, investments and net exports show the economy growing at 2 percent in the third quarter, up from 1.3 percent in the second. In normal times, this would be nothing to get excited about; average GDP growth between 1947 and 2012 was 3.25 percent. But we are recovering from a systemic financial crisis, not a routine dip of the business cycle, and in such cases recovery is noticeably more sluggish. Don’t believe Cassandras who suggest the good news is a chimera. We are in an “L”-shaped recovery rather than a “V”-shaped one, and the fact that GDP is steadily rising is in itself encouraging.
What effect will this figure have on the election? A single statistic, like a single opinion poll, is just a snapshot. As with polls, to understand what is going on, you have to look at the moving pictures rather than a single frame. And growth figures, like polls, are open to revision. There is a predictable margin of error. Within a month the 2 percent GDP estimate will be revised; historically it has moved within a range of 0.5 percent up or down. So we may be looking at GDP growth of 2.5 percent or 1.5 percent, but we won’t know which before Nov. 6. With the general election near, any evidence, however small, is going to be closely scrutinized. On its own, the 2 percent figure does not tell us much, so we should not be distracted by those who make big claims about it one way or the other. What is significant is that it is part of a growing trend suggesting that the economy is slowly emerging from its slumber.
Take housing. The latest figures, for September, show a surge in new homes, up 15 percent in a single month, the fastest growth in four years. As the current financial crisis was founded on a housing bubble, the fact that builders are speeding up their housing starts suggests the economy in general is steadily recovering. The housing figures are good news for employment, too. For every new house built, at least three jobs are created. Sales of new homes are also on the rise, and inventory has fallen “to the lowest level on record.”
House prices are also increasing, suggesting not only that the glut in inventory is coming to an end after six years – the cheap rates and inappropriate lending that fueled the housing bubble encouraged too many homes to be built in the wrong places – but that the number of homeowners underwater is diminishing. Relief from the worry of owing more to your mortgage company than your house is worth encourages personal borrowing and spending, which increases demand that creates jobs.
More can be done to bolster house buying, not least encouraging banks and mortgage companies to lend more freely by clarifying the federal government regulations about new lending and refinancing existing mortgages. Fixing that bottleneck should be a priority for whoever wins on Nov. 6.