US Economy Grows 2.8%

Don’t get too carried away by today’s report on the economy. Growth of 2.8% in the third quarter is nothing to be happy about because it falls right in that range of ho-hum figures that neither excite nor disappoint. It isn’t sufficient to break the back of unemployment, but it is enough for do-nothing politicians to use as a reason to do nothing.

We are stuck., but at least inflation is nonexistent. I wish that were a good thing, but it isn’t. A little inflation, say around 3% per year, would help us enormously by easing the pressure on borrowers, and by introducing some elbow room into credit markets so that Fed policy would have more purchase against our problems.

When I think about it more I fear that 2.8% is almost exactly the kind of number we don’t want. Especially as the great conference in Congress is kicking off and exploring the possibilities of a grand bargain on the deficit. Had growth slumped it might have energized those few in Washington who actually care about our workers into action to end the lunacy of the sequester and the damage that austerity is doing to each and every one of us. Had growth been much higher it might have ben sufficient to reduce the deficit even more rapidly than it is reducing now and thus have relieved pressure on the need for further reduction.

But no. We are stuck in no man’s land still.

The colossal failure of recent economic policy is now so manifest I have to wonder whether anyone – anyone – down in Washington understands just how  poor their collective record is. The one thing we can be sure of is that they are so absorbed in ideological infighting that they no longer have any contact with reality. I have used the metaphor of trench warfare many times these past few years and I still cannot think of a better one. Just as the generals failed to think beyond the trenches and the stalemate they imposed on them, our current leadership cannot think beyond their fixation on the deficit, the debt, and the stalemate they impose on policy.

Boy are we stuck.

In any case the numbers today are not that good even if you accept 2.8% as being par for our rotten policy set. Too much of third quarter growth comes from an increase in business inventories. The problem with inventories is that an accumulation can be either good or bad. Good if it signals business is optimistic about future growth and is ramping up production ahead of sales. Bad if it signals that business missed a downturn in sales and will have to reduce future production to downsize and fit demand. Given the rest of today’s report I suspect it the negative message we should hear, not the positive.

True, trade improved, but with the shadow cast by the antics of the Republicans in Congress, the world economy can catch cold at any moment. So trade is no guarantee of a rosy future. Besides, no matter what you hear, trade is just not a large enough component of our economy to drive us to the promised land. Our issues are all domestic, which given the impasse in Washington, means we won’t resolve them any time soon. As case in point: today’s report tells us that consumer spending, the true engine of our economy, sputtered along at 1.5% in the third quarter. That’s down from a poor 1.8% in the second. Business investment, another key engine for growth, also fell – from 4.7% to 1.4% – so the private sector is not looking good.

Then there’s the continuing cut in government spending. Federal spending alone fell 1.7%, and has now fallen for four straight quarters. That’s what austerity look like. Those cuts mean fewer jobs and less cash flowing into the myriad of businesses that rely on government contracts to keep afloat.

Not that you would think the deficit is melting away were you to listen to the Republicans. Paul Ryan remains adamant that we need a “down payment” on deficit reduction – especially cuts in entitlement programs like Social Security – in order for the great conference to have any meaning. As if the recent precipitous decline in government spending was not a;ready a large – too large – a down payment.

I apologize if this all sounds repetitive or downbeat, but I think we all need to realize just how awful policy has been and how much damage is self-inflicted rather than “natural”. We have well and truly shot ourselves in the foot, and our politicians continue to relish the chance to shoot again. That is plainly stupid and antisocial. Especially when we have the policies, if we would use them, to stop the rot and build a brighter fixture for us all.

As I said, don’t get too excited over today’s report.

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