So here’s the report headline. US GDP growth came in at 2.8%, beating predictions of 2.0%. Meanwhile, weekly unemployment claim numbers also came in today, down slightly at 336,000. Those numbers are at least not terrible.
From the overcaffeinated financial press, this has resulted in screaming headlines about BEATING EXPECTATIONS and eager discussion of when/if the Federal Reserve will cut back their monetary stimulus. This time, our scoop of paste was slightly larger than expected!
But this reaction to a bit of slightly above-average news really shows how little we’ve come to expect these days. Back in 90s full employment days, this report would have been passably mediocre at best.
Bill McBride has the most sensible analysis. The headline number was good, he says, but when you look deeper it’s basically a wash. Personal consumption is slowing, and a lot of the GDP number was driven by inventory accumulation:
Personal consumption expenditures (PCE) increased at a 1.5% annualized rate – the slowest rate since Q2 2011. Change in private inventories” added 0.83 percentage points to GDP in Q3.
So people are spending less, and companies are piling up unsold inventory. The only unambiguously good news is that, first, state and local government austerity seems to be over for good, finally. Second, residential investment is strongly up — that’s coming off a baseline of the worst collapse since WWII, and is still lower than any previous recession, but at least it’s bottomed out. The foundations of a stronger recovery are slowly shambling into place. If we just quit tightening the neck-ziptie of federal austerity (and if Congress stops lashing the economy to the railroad tracks for no reason, of course), a strong recovery is well within the possible.
The need for new revenues has achieved Very Serious status in high liberal circles, the kind where it’s just baked into the background assumptions and almost impossible to argue with. Check out this Times editorial: “no one knows whether Republicans will be willing to raise revenues, a fundamental ingredient of any serious offer.”
Now, this isn’t exactly wrong! Taxes will have to come up in the long term. But it’s plainly obvious that Republicans will never agree to new revenues. Democrats will have to hold the presidency and both houses of Congress to make that happen. There is simply no other option. Furthermore, right at the moment the budget deficit is not just a ninth-tier issue, it’s actually harming the country.
That is why Democrats should be ready to toss their beloved tax increases over the side. The focus simply must be on finding a bargain that will reduce austerity.