GDP Posts 3.5% Gain In Third Quarter

The US GDP(gross domestic product) rose 3.5% for Q3 according to the Bureau of Economic Analysis.

" The increase in real GDP in the third quarter primarily reflected positive contributions from
personal consumption expenditures (PCE), exports, private inventory investment, federal government
spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP,
increased.

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private
inventory investment, in exports, and in residential fixed investment and a smaller decrease in
nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and
local government spending, and a deceleration in federal government spending.

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after
adding 0.19 percentage point to the second-quarter change. Final sales of computers subtracted 0.11
percentage point from the third-quarter change in real GDP after subtracting 0.04 percentage point from
the second-quarter change."

However, at least half the gain was due to temporary government stimulus schemes. The market is reacting well to the news and the pundits are claiming this marks the end of the recession.

It's too quick to claim this is the end. As Barry Ritholtz points out his Big Picture
blog:

"The 1st question to ask about GDP is the degree of inorganic/artificial gains. As the above paras suggest, much of the improvement is where the government is spending, incentivizing, or bailing out various sectors: Autos, Residential RE, and Fed spending. As expected, Inventory reduction helped, and unexpectedly, increasing imports hurt.

A large chunk of the gains — 1.66 percentage points — came from Car sales in the form of cash for clunkers; this will not be in the Q4 data.

Home building soared 23.5% — reflecting a combination of zero percent interest ratyes (ZIRP) and 1st time homebuyers tax credit. That was good for another 0.5 percentage points of GDP.

Well over half of the gains are therefore government related.

Also of note: Nominal GDP was below forecasts, thanks to a surprise 0.8% gain in the deflator (That also added to the REAL GDP figure). Hence, a chunk of the gains are pure inflation."

Claims that the recession is over are premature, at best. The Q4 Christmas shopping season will be a huge test. Credit card companies have jacked up interest rates and decreased credit limits on millions of people. It's extremely likely that it will have a negative effect on sales.