Forecasters estimate that the U.S. economy grew at a 1.9 percent annual rate during the third quarter, from July through September. If that figure is accurate, it means the economy is getting stronger: Growth was 1.3 percent in the second quarter. But a growth rate in the ballpark of 2 percent is nothing to write home about, given the high unemployment rate. Economic growth, then, would be in the ballpark of the nation’s long-run potential but not enough to put the millions of jobless people back to work with any speed.
GDP is the broadest measure of the nation’s economic activity, aiming to capture the value of goods and services produced in the United States during a given time period. Although the unemployment rate may hold a more visceral appeal to voters as a measure of how the nation is doing, it is ultimately GDP — how much stuff we make — that determines whether the United States is growing richer or poorer.
Whatever the numbers released Friday morning, it is a safe bet that they will come under a fun-house mirror of political analysis. Who can forget the last jobs report, when instead of parsing the surprising decline in
the unemployment rate, vast amounts of ink and airtime were devoted to conspiracy theories around the 7.8 percent number itself?
But here are some deeper trends to look for in the GDP report to understand what is really going on inside the economy.
Consumer spending looks to have been a source of strength in the summer months. Indeed, if the projections prove accurate, and the question Friday is “Why did growth speed up?” the simplest answer will be “because consumers spent more.”
There are some reasons for concern, however, about the durability of such consumption spending. Spending has been rising faster (up 0.4 percent in July and 0.5 percent in August) than incomes (up 0.1 percent each month). That means people are cutting into their savings to keep up their levels of spending. Savings rates can’t (and shouldn’t) decline forever. Eventually, either incomes will need to rise or spending will get squeezed.
Another segment of GDP — housing — also is expected to show strong gains. Residential investment rose at a 20.5 percent annual rate in the first quarter and 8.5 percent rate in the second, and analysts are looking for another double-digit increase in the third.
But those gains are rising from an exceptionally low base, so even large percentage gains don’t do much to move the needle of the overall economy. For example, the first-quarter rise of 20.5 percent was only enough to add 0.4 percentage points to the overall growth rate of GDP.
Meanwhile, another significant economic driver for the last couple of years may be puttering out. The rate of growth in business investment in equipment and software has decelerated each of the last three quarters, and signs do not point to a rebound from last summer.
Indeed, data released Thursday suggested that more hard times could be ahead for business investment. Overall, durable goods orders rose a strong 9.9 percent in September, the Commerce Department said. But that was due to a sharp gain in aircraft orders that merely reversed an August decline.
A measure of core business investment spending — orders for nondefense capital goods, excluding aircraft — was unchanged in September after rising only 0.2 percent in August and falling 5.6 percent in July.
Finally, government spending has been a drag on growth during the past eight quarters, as state and local governments have slashed spending (in the last four of those quarters, federal government cuts were also part of the story). The question for the third quarter is, even if the contraction continued, how much did government cuts drain the economy?
The last two years of sluggish economic movement wouldn’t look so gloomy if government spending was merely flat rather than subtracting from the growth generated by the private sector.