[TropicCat]

There seems to be some issues with the recent good news of 3.5% increase in GDP. Ordinarily, these reports aren't looked at too closely, but since this one supposedly signals the end to the Great Recession, folks have been peeking under the hood so to speak, to see how the increase was calculated.

A few notable points have been raised:

I. Cash for Clunkers was both good and bad. Good for this quarter, but horrible going forward.

1.66% of the 3.5% GDP increase was attributed to 'Cash-for Clunkers'. This isn't a sustainable program and since it's already ended, we won't be seeing an increase going forward. However, this very same program has impacted another set of important numbers. The same GDP report tells us that Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving (disposable personal income less personal outlays) was $364.6 billion in the third quarter, compared with $533.1 billion in the second.

The personal saving rate was 3.3 percent in the third quarter, compared with 4.9 percent in the second. This had to be "cash for clunkers". Acquiring new debt is the worst sort of "spending" as you're replacing a paid-off car with one that now comes with a payment book.

II. Personal Income is collapsing: In short, less income, less savings, more taxes.

Gross personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second. At the same time, Personal current taxes increased $4.8 billion in the third quarter, while it decreased $119.1 billion in the second. In short, Taxes up, income down.

Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, instead of the increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent. Disposable personal income decreased in nominal terms by 5.9% while in real terms (inflation adjusted) it decreased by 7.2%.

Would someone explain to me how a decrease in purchasing power ends a recession?

III. Complete and utter confusion:

From Market ticker.com:

"Looking inside the data, the "big change" in private domestic investment is all residential fixed - up 23.4%. I don't believe it. I've been scouring the homebuilder earnings releases and data, and I don't see the numbers that support this. An improvement over the ditch-diving of the last many quarters, yes - but a 23.4% increase, a swing of fifty percent from Q2-Q3? Oh hell no. Where is it? It's not in Home Depot's or Lowe's quarterly results, it's not in the home builders, and I can't find it in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

Nor do the export and import numbers look right. Port of Long Beach and LA anyone? Those numbers also don't add up - swings of 20-25% in one quarter? Not reflected in container volumes and freight loadings. Yet it has to be - how do you get something in or out of here without it going through a port?"


So, GDP was up 3.5% ... maybe.... yet nothing in the report suggests a real recovery is underway as none of the gains are repeatable. How could they be? Consumer spending is 70% of the economy, yet we are still losing jobs. People without jobs can't buy anything.