Outside the Beltway

Remember that anemic but better than nothing GDP growth rate of 2.5% in the Third Quarter? Yea, well, that’s gone now, and the future’s not looking all that bright all of a sudden:

The United States economy grew at a slightly slower pace than previously estimated in the third quarter, but weak inventory accumulation amid sturdy consumer spending strengthened analysts’ views that output would pick up in the current quarter.

Gross domestic product grew at a 2 percent annual rate in the third quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously estimated 2.5 percent.

The revision was below economists’ expectations for a 2.5 percent growth pace. But the details of the G.D.P. report, especially data showing still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009, appeared to set the stage for a stronger economic performance this quarter.

Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.

Not everyone shares that rosy outlook on the future, though:

Economist Justin Wolfers has been rummaging through the new GDP data and observes that the underlying fundamentals don’t look terribly encouraging either. It’s possible we could be in store for further downward revisions, meaning we’ve been growing even less than the already-middling rate that the current numbers suggest. “At this point,” Wolfers notes, “we are only one small data revision away from declaring the US is in a recession, which began in mid-2011. Seriously.”

And then there’s Europe, which seems to vacillate between bad and worse every other day or so. A recession there is likely to slow growth in the United States at least somewhat and,even if it doesn’t throw us into a recession as well, it’s going to make this recovery even more anemic than it’s been so far.There’s still on more revision of the third-quarter data to go, and it’s entirely possible that we’ll see the growth number slip below 2%. If that happens, then any idea that we’re getting out of this any time soon will go right out the window. And, oh yea, that 3% forecast for the 4th Quarter? I wouldn’t necessarily count on it.

Economics and Business

GDP

28 responses to “Third Quarter GDP Revised Downward To 2.0%”

Rob in CT

November 22, 2011 at 10:35 am

Clearly, we need austerity now. Right, Doug?
1. Doug Mataconis
  
  November 22, 2011 at 10:36 am
  
  There’s no choice but austerity now, Rob. We’ve backed ourselves into a corner thanks to four and a half decades of profligacy
Console

November 22, 2011 at 10:43 am

@Doug Mataconis:

No choice? Did our treasury rates go up last night while I wasn’t looking or something?
Doug Mataconis

November 22, 2011 at 10:49 am

@Console:

S&P is already hinting that failure to allow sequestration to go forward will lead to a debt downgrade. Massively increasing spending is going to do the same thing. The party is over, friend.
Tano

November 22, 2011 at 10:59 am

Why did you write “and the future’s not looking all that bright all of a sudden:” and make that a link to the article which basically says the exact opposite – that when you delve into the data you see that there are trends afoot that indicate that 4Q will have rather strong growth – the best in several years.

Yes, you find one other economist who disagrees, but that is not the point made in the original story – the one you link to.
Tano

November 22, 2011 at 11:00 am

failure to allow sequestration to go forward will lead to a debt downgrade

What effect did the last downgrade have on interest rates?
Rob in CT

November 22, 2011 at 11:04 am

Oh noes! Another downgrade might happen! Catastrophe!

I distinctly recall one of the ratings companies (Moodys?) laying out (carefully, of course) that the downgrade was due to the political game of chicken.

The ratings agencies would be fine if the US raised taxes to pay for the spending, as far as I can tell. The ratings agencies would be fine if the US announced a plan to get long-term debt under control, coupled with stimulus in the short term, as far as I can tell.

But no. Doug tells us we must have Austerity now. Look at how well it’s working in Europe!
Rob in CT

November 22, 2011 at 11:07 am

I should add, though, that I’m with you on the four and a half decades of proflicacy (with a brief interlude of almost sanity, aided by a boom/bubble). That has weakened us, both financially and politically.

And that sucks. I don’t see that as a reason to embrace the wrong policy now, though.
Doug Mataconis

November 22, 2011 at 11:08 am

One debt downgrade hasn’t had much of an impact, admittedly. A second downgrade, or a downgrade by one of the other ratings companies, though, is likely to have a significant impact on interest rates at all levels of the economy at precisely the wrong time.
Doug Mataconis

November 22, 2011 at 11:09 am

@Tano:

You really trust the Commerce Department’s rosy scenario? I sure don’t
john personna

November 22, 2011 at 11:25 am

There are alternatives to austerity. Spending could be remapped (currently) and recharted (in the future). That kind of planning is entirely possible in a fiscal and economic sense.

It is just off the table because Republicans block it, and reduce all options to a BS “now or never” argument. That is, unless we do everything “now” then our budget in 2035 will be such and such.

What part of 2035 don’t they (you, Doug) understand?
ponce

November 22, 2011 at 11:51 am

A second downgrade, or a downgrade by one of the other ratings companies, though, is likely to have a significant impact on interest rates at all levels of the economy at precisely the wrong time.

Because those Greek and Italian bonds will suddenly look more attractive to investors than bonds backed by the U.S. government, Doug?
Tano

November 22, 2011 at 12:06 pm

@Doug Mataconis:

You really trust the Commerce Department’s rosy scenario? I sure don’t

Its not a question of trust. They see depleted business inventories, and relatively strong consumer spending. Throw in the unemployment claims which have been trending downward, and the facts simply seem to indicate that the economy is getting some footing, and that 3%+ growth for 4Q is a reasonable estimate.

Cynicism is laziness. Look at the actual numbers.
Rick Almeida

November 22, 2011 at 12:55 pm

@Doug Mataconis:

A second downgrade, or a downgrade by one of the other ratings companies, though, is likely to have a significant impact on interest rates at all levels of the economy at precisely the wrong time.

Any chance of seeing some scholarly literature or objective professional estimates on this?
Doug Mataconis

November 22, 2011 at 1:01 pm

I discussed the reasons why a second debt downgrade from another credit rating agency, be it Moody’s or Fitch, could be problematic in a post in August.
ponce

November 22, 2011 at 1:06 pm

I discussed the reasons why a second debt downgrade from another credit rating agency, be it Moody’s or Fitch, could be problematic in a post in August.

Cutting and pasting something written by McMegan McArdle is a cry for help, not an objective argument, Doug.
1. Doug Mataconis
  
  November 22, 2011 at 1:08 pm
  
  Ponce,
  
  Do you have a factual response rather than just personal insults?
Neil Hudelson

November 22, 2011 at 2:03 pm

The United States economy grew at a slightly slower pace than previously estimated in the third quarter

By my math, it was a full 20% lower than previously thought. What is this author’s definition of “slightly?”
Rick Almeida

November 22, 2011 at 2:04 pm

@Doug Mataconis:

I read your linked post (thanks for providing that), and the analysis is indeed a link and an excerpt from a Megan McArdle 153-word piece.

Again, I ask if you have some scholarly literature or objective professional estimates on this.
ponce

November 22, 2011 at 2:10 pm

Do you have a factual response rather than just personal insults?

Not trying to be insulting.

If I said I had written a reasoned post on race relations in America at such and so a link and you went there and found that I’d just linked to and excerpted a racist rant by someone in the KKK would you take me seriously?
Rob in CT

November 22, 2011 at 2:31 pm

When it doubt, definitely trust Jane Galt.
Ben Wolf

November 22, 2011 at 2:58 pm

@Doug Mataconis: A downgrade will have absolutely no effect. The bond market doesn’t run things here, the Fed does and the market is its dog. The bond vigilantes won’t suddenly raise our costs of borrowing (whiich is a misnomer because the U.S. doesn’t “borrow” from anyone) and our country’s financial footing is sound. The fear-mongering is getting old.
Ben Wolf

November 22, 2011 at 3:04 pm

@Doug Mataconis:

There’s no choice but austerity now, Rob. We’ve backed ourselves into a corner thanks to four and a half decades of profligacy.

How many times has this been explained to you? When someone wants to buy U.S. bonds the byuer’s bank disburses reserves to the government’s account at the Fed. When the bonds mature the reserves are switched back. Who is the monopoly supplier of bank reserves? That’s right, the Fed. Which means when the U.S. issues “debt”, all it’s doing is switching reserves it created back and forth so as to drain the excess and hit its target interest rate. We don’t “owe” anyone anything because we aren’t actually borrowing money. The U.S. cannot go broke, cannot become insolvent and cannot involuntarily fail to meet its liabilities.
anjin-san

November 22, 2011 at 4:21 pm

We need austerity? Fine. Let’s start by ending corporate welfare. Let’s cut the “defense” budget. When that is done, let’s talk about next steps.
Doug Mataconis

November 22, 2011 at 4:26 pm

@anjin-san:

Let’s start by ending corporate welfare.

Sign me up.

Let’s cut the “defense” budget.

Works for me.

Next, we can go after farm subsidies, and reform the tax code to eliminate all deductions, exclusions, and credits.
mantis

November 22, 2011 at 5:05 pm

@Doug Mataconis:

All of that sounds good to me, as long as we raise taxes on the wealthiest. How about it, Doug?
Ben Wolf

November 22, 2011 at 5:28 pm

We don’t need austerity. We don’t need cuts. We don’t need tax hikes. Our government cannot run out of money. There is no public or sovereign debt problem. Our country is fiscally sound. Our citizens are still the most productive in the world. Our human capital is estimated at $750 trillion, something other countries can only dream about.

Anyone who thinks we shouldn’t be bullish on the future needs to state their case. Otherwise stop trying to frighten people by making up crises.
OzarkHillbilly

November 22, 2011 at 6:55 pm

@Doug Mataconis:

You really trust the Commerce Department’s rosy scenario? I sure don’t

But you trust Moody’s? S & P’s? After ’08?

Doug, I do not trust any of the shysters, especially after I (a dumb ass union carpenter) called the crash right, a year before it happened….While they were still rating this crap “AAA”…

But you still listen to them. Why? Because every one else does?

Wake up, Doug.