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Don't be fooled by GDP growth: The U.S. economy is still struggling
Yes, economic growth beat expectations. But the whole story is far more disappointing.
Gross domestic product rose at a 2.8 percent annualized rate over the third quarter, beating analyst expectations and, at first glance, painting an optimistic picture of the U.S. economy. That is certainly how Jason Furman, chairman of the White House's Council of Economic Advisers, portrayed the situation.
The problem? While the economy expanded, it wasn't because people were spending more. It was because businesses were stockpiling inventory. The Washington Post's Neil Irwin explains why this isn't a good thing:
Inventory increases can happen for either good or bad reasons — perhaps businesses were feeling optimistic about the future and wanted to stock up, or perhaps demand for their products was below forecasts, so inventories built up unintentionally. But either way, any growth (or contraction) owing to inventory shifts should be non-repeating. [Washington Post]
That means we shouldn't expect a similar rate of GDP growth in the next Commerce Department report — which, by the way, will include data from October, when the government shut down for two weeks. A full 0.83 percent of the 2.8 percent growth between July through September came from inventory accumulation.
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Consumer spending, on the other hand, failed to meet expectations, growing by only 1.5 percent, the slowest rate since spring of 2011. That is problematic, reports the Financial Times, because "while businesses are anticipating growth to pick up — and restocking — actual demand is not so strong at the moment."
There were some bright spots. Motor vehicles sales were up. Residential and commercial estate investment was up 14.6 percent and 12.3 percent, respectively.
Unsurprisingly, consumers remain the primary engine for growth, but the pace of spending growth continues to stall… Government spending was a wash for the quarter, as moderate growth at the state and local levels was offset by federal spending cuts for the fourth consecutive quarter. Business spending, which was already limited, was soft once again, growing by only 4.1 percent. Corporate America remains cautious in extending itself. [Wall Street Journal]
The consensus seems to be that the U.S. economy is limping forwards — a bad sign considering it hasn't fully recovered from the Great Recession. The government shutdown probably didn't help things either.
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We will have a clearer picture of how the U.S. economy is doing when the Labor Department releases its jobs report on Friday.
Keith Wagstaff is a staff writer at TheWeek.com covering politics and current events. He has previously written for such publications as TIME, Details, VICE, and the Village Voice.
