The United States is now in its fifth year of the current economic recovery. Analysts are still looking for information that the economy is going to pick up steam and mover into a more robust period of growth. Since the Second World War the United States economy has never had such a tepid recovery.
The expansion is now in its 53rd month. There are only six periods of expansion since 1945 that exceed the length of this expansion. There are only five periods of expansion during this time that were less than this length. The next longest expansion lasted 55 months. This still leaves people looking to bits and pieces of news that the economy is going to begin growing more rapidly in the near future.
It seemed like there was good news coming out when the third quarter GDP number was announced to be an annualized 2.8 percent. That is, it seemed like good news since it was substantially above the rate of growth expected (2.0 percent) that analysts had expected. Then people started looking more closely at the number.
For one thing, the 2.8 percent rate of growth was only the quarter-over-quarter rate of growth annualized. The year-over-year rate of growth for the third quarter was only 1.6 percent.
This is down from the year-over-year rate of growth for the third quarter of 2012, which was 3.1 percent. The same measure for 2011 was 1.5 percent and for 2010 was 3.0 percent. Things are not "booming" along!
Looking at the rate of growth of real consumption expenditures we see that the growth rate, year-over-year was 1.8 percent. The previous three years the year-over-year growth rate was 2.2 percent for 2012, 2.5 percent for 2011, and 2.0 percent for 2010.
The consumption growth figures are interesting to look at because consumption expenditures are somewhere around 70 percent of the GDP number and the growth in consumption expenditures is much more stable than other items that make up total GDP.
Looking elsewhere the major factor that pushed real GDP growth above the 1.8 percent rate of growth of real consumption expenditures was the buildup in inventories that accounted for almost a full percentage point of the 2.8 percent rate of growth of real GDP. That is, it looks as if the 2.8 percent growth was composed of 1.8 percent growth in consumption spending and 1.0 percent growth in inventories.
This fact means that fourth quarter GDP growth might be so rosy as businesses try and trim inventories back to more economic levels while real consumption growth keeps on a steady path of somewhere around 2.0 percent, year-over-year.
There does not seem to be anything prominent on the horizon to make one expect a more robust fourth quarter. In fact, with the spreading impact of the sequester of government spending and the shutdown of the government in October along with the debt-ceiling battle, the expectation might be for a disappointing fourth quarter real GDP number. The bottom line, however, is that the United States economy is not experiencing a very robust recovery.
My expectation is that the United States economy will continue to grow in the 2.0 percent to 2.5 percent range for the next couple of years. I also continue to believe that the monetary expansion created by the Federal Reserve will go around and around more in the financial circuit with very little spill over into the real production of goods. This behavior is just an extension of the expectations built up over the past fifty years of credit inflation.
The federal government continues its policy of credit inflation and I see no end in sight. This expectation is now so firmly built into the behavior of the people, businesses, and governments that it will dominate how resources are allocated in the near future. Therefore, expect monetary expansion to go toward the purchase of assets and not that much into the production of goods. Expect the rewards of this economic policy to go to the "savvy" investors and not into the hands of the other 90 percent of the population, just as it has for the last 50 years.