No, that’s not the Richter Scale rating of the latest earthquake in Farawayistan. That’s the annualized rate of growth that the United States’ economy allegedly had in the third quarter. It happens to be the biggest surge in the Gross Domestic Product since the Reagan Administration.
But if the economy is growing that fast, where are the blowout profits from Wall Street? If we really spend 15% more on computers and software last quarter than the previous quarter, why didn’t all the computer and software companies announce a spectacular quarter?
Where are the expanding small businesses? Shouldn’t they be hiring? Are we really to believe that there was so much overcapacity that they don’t need to be buying office supplies and building bigger facilities?
And what about the consumer? They are refinancing the house like crazy, but that can’t last forever; will they be buried in debt when interest rates inevitably rise again? And if we really bought almost 27% more cars than in the previous quarter, what are we doing with all the used cars? Why aren’t the car makers posting, say, 15-20% greater profits? Supposedly those $400 child tax credit checks made a big difference. Even if it did, that won’t happen again this quarter.
As I write, the Dow and NASDAQ are up half a percent, and the S&P 500 is pretty much flat. I do not believe the markets anticipated such a high GDP number. Just yesterday the FOMC said there would be no change in interest rates in the foreseeable future, and I have every reason to think Greenspan had this figure handy. Therefore, the markets are not anticipating that the higher GDP will immediately cause interest rates to rise. That leaves the possibility that Wall Street does not think this is real. Or rather, investors do not think that the fortunes of publicly traded companies will be beneficially effected. Let me get this straight, the economy is great but business is not improving?
Where is the money going? Some of it went overseas in the form of a reduced trade deficit and reduced exchange rate for the dollar. That doesn’t really help Joe Average, who will now have to pay more for everything imported. Some of the growth represents “inventory drop,” or the sale of stuff that has been sitting in the warehouse for a while. The people and suppliers who made this stockpile possible were paid some time ago.
The fact that the number of jobs out there is still declining should make us question this high GDP number. Clearly one trend or the other is not sustainable.