Friday, October 29, 2010

GDP

The Lehmann Letter (SM)

This morning the Commerce Department announced that GDP grew by 2.0% in the third quarter:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

That means the economy is out of recession, with recovery in the weak-to-moderate range.

GDP

(Click on chart to enlarge.)



Recessions shaded

It also means that we can expect no more benefit from fiscal or monetary policy. Here's why:

Federal government expenditures grew by 8.8% - a healthy clip. But that obviously was not sufficient to pull the entire economy along at a buoyant rate.

The Federal Reserve has kept interest rates low and plans to reduce long-term rates by even more. But, as readers of this letter know, lower rates are not likely to boost growth. The economy is still suffering from the burst real-estate bubble, and lower rates can't help that. (Lower rates have an immediate impact on spending in an inflationary climate, and that's not what we have today.)

In conclusion: The federal government and the Federal Reserve have done what they can do to stimulate the economy. It won't be enough. And we can't anticipate a technology boom a la the 1990s or a real-estate boom a la 2003 -space 2008. Green technology isn't there yet and housing is down for the count.

Now we have to prepare ourselves for a long, slow recovery. Not a double-dip recession – just a tedious slog.

We are entering a period unlike any other we've seen since World War II.

(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

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