The Recession Is (Unofficially) Over

The Department of Commerce reported that the U.S. economy expanded in the third quarter for the first time in a year, the improvement driven by government subsidized consumer spending and an increase in homebuilding.
The nation's broadest measure of economic activity grew at a seasonally adjusted annualized rate of 3.5 percent during the July-to-September period following four consecutive quarters of contraction, the longest and deepest contraction in the post WWII era.

In the graphic below, the role of consumer spending is clear to see. After an average contribution of -0.86 percentage points since the recession began in late-2007, personal consumption added a whopping +2.36 percentage points last quarter, a total that was greatly influenced by the wildly popular Cash for Clunkers program.
The increase in private domestic investment above - a contribution of +1.22 percentage points during the third quarter - was due to a combination of inventory changes and higher levels of residential construction, but, based on recent data from the homebuilders, the latter is likely to stabilize, at best, and perhaps reverse in the fourth quarter.

The personal consumption figures are striking. Overall gains were driven by a surge in purchases of durable goods, primarily automobiles. Total consumer spending was the highest since the first quarter of 2007 and, in a sign of just how much consumers have pulled back over the past year or so, the third quarter "surge" in spending appears rather ordinary when compared to the entire period from 1998 to 2006 as shown below.
Whether or not these trends continue in the fourth quarter remains to be seen, but initial indications are not good for auto sales and homebuilding.

It won't take much to turn the third quarter data negative - remove the personal consumption, residential construction, and inventory change contributions from the current total and, instead of an annual rate of +3.5 percent, it turns into -0.3 percent.

Comments

[Dave Wrixon:]

I'll believe it is over when there is monetary tightening and not before. If they don't believe it, then why should I?

Oct 29 04:44 PM

[thiazole:]

So when interest rates were low throughout the 90s, did you believe that the US was in a recession because they weren't tightening monetary policy?

Still, you will see it begin sometime in 2010 - I'm thinking in the 3rd quarter.

I'm going to make a friendly wager that you still won't admit anything, though (none of the doom and gloom you predicted earlier this year has come to pass, yet you are just as bearish as ever).

On Oct 29 04:44 PM Dave Wrixon wrote:

> I'll believe it is over when there is monetary tightening and not
> before. If they don't believe it, then why should I?

Oct 29 06:01 PM

[User 353732:]

The economic policy of the current US Regime is:
1. Trillions in tribute to the overlords of failed financial and idustrial monsters but not a cent in tax relief for small business or Middle class families in the real economy
2. Everything for the Bosses, nothing for ordinary familes

With such a policy it is entirely possible for the Vapor Economy to grow, for a season or three, even as the Soild Economy compresses.
The farce is that despite the massive force feeding of liquidity, relentless propaganda and deranged borrow and bribe to consume efforts all they managed was 3.5% "growth"? Surely 5 to 6 % is the least they could have bought with their trillions of fake dollars.....

Oct 29 07:14 PM

[Moon Kil Woong:]

"The Department of Commerce reported that the U.S. economy expanded in the third quarter for the first time in a year, the improvement driven by government subsidized consumer spending and an increase in homebuilding."

The increase in homebuilding was in part driven by first time buyer tax credits and continued zirp and QE policies. Thus pretty much all of it is artificial with a giant dollop on rising commodity prices. I suppose we are all really happy about higher gas and food prices. Cheer for higher prices. Higher prices help the econony. Be a patriot, pay more for basic neccesities. The presumption that this is good is patently ridiculous.

Oct 29 10:32 PM

[Zmartmoney:]

Actually, the rumor of monetary tightening is just supposed to make you feel hopeful and cause us to move onto some other subject, like "man-made" global warming. The splendiforous spending plans of Congress won't leave any room for tightening - that would dash all their plans for trashing the Constitution and instituting the European Socialism model here at home. The tightening will likely come in the form of stagflation, a jobless recovery, and continued dollar decline that will force us to tighten in ways we're not currently expecting (hoping) to actually blossom.


On Oct 29 04:44 PM Dave Wrixon wrote:

> I'll believe it is over when there is monetary tightening and not
> before. If they don't believe it, then why should I?

Oct 30 11:49 AM

[Roman_Fiddler:]

GDP is a hollow, meaningless, bogus stat. It has been pumped up artificially by the Cash for Clunkers stimulus money, and low interest rates and tax perks to encourage new property.

I'm not into gloom and doom, but that is how I see it. I think all govt intervention to re-inflate the consumer bubble is just setting us up for a yet bigger pop when it finally deflates properly (which it must).

Oct 30 01:33 PM