Monday, 29 October 2012

US third quarter GDP report shows no recession for now

According to the advance estimate from the Commerce Department, the US economy grew at a 2.0 percent annual rate, accelerating from the 1.3 percent growth rate in the second quarter.

Bill McBride thinks the US economy is likely to avoid a recession in the near future.

The key story is that residential investment is continuing to increase, and I expect this to continue (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2013 (with the usual caveats about Europe and policy errors in the US).

However, James Hamilton finds little encouraging in the third quarter GDP report.

The biggest boost to third quarter growth came from federal military spending, which all by itself added 0.64 percentage points to the 2.0% total growth. Possibly this represented spending in anticipation of sequestration to come, in which case it could be more than matched by a corresponding negative entry this quarter or next. Nonresidential fixed investment subtracted 0.1%-- not a huge drag, but a very worrisome development.

John Hussman goes one step further and says that the US economy is in “an unrecognized recession that started about mid-year” and that the growth rate reported for the third quarter is likely to eventually be revised downward.

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