Today, we learned that 3rd quarter GDP grew 4.3%. Or perhaps more accurately, TheStreet.com informs us that’s what the “Government Says.” Noting a source, or being skeptical? Nobody can blame them for the latter, since “The growth came despite two major hurricanes that slowed economic activity in the quarter, energy price shocks, higher interest rates and a record trade deficit in September, which subtracts from GDP.”
Many seem surprised by the fact that the “Economy Expands in 3Q Despite Hurricanes.” Nobody seems to have considered that the hurricanes may have boosted the economy.
How the heck does that work? A major metropolitan area is almost wiped from the map, three states are devastated, energy costs reach record highs, and I think that might have improved the economic numbers?
All those people who were displaced by Katrina and/or Rita still needed a place to live, and food. Many of them had to replace most of what they owned, and that meant spending money. Add the money that was spent by FEMA and the Red Cross and other aid organizations. Add everybody who spent money helping hurricane victims. The money being spent to clean and rebuild the gulf coast. All the insurance settlements being spent replacing that which was destroyed. The money being spent on security goons who might otherwise be overseas.
And finally, add any money that Joe and Jane Average spent trying to save on energy: a more efficient car; better insulation for the house.
Despite this better than expected showing for the economy, stocks and the dollar are in mixed trading — some things are up, some down. And gold is still trading at levels associated with “a safe haven when the dollar drops, inflation rises and economic calamity looms.”
Why aren’t the markets reflecting this great news? MarketWatch tells us it’s several things. Because there is still some inflation, the Fed will almost certainly raise interest rates. Happy New Year. Oh, and the consumer — whose spending resulted in the good news — cannot be counted on to spend even more money this quarter. After all, wages have risen less than 1% in the last 2 months and job growth is barely keeping up with new entries to the workforce. In fact, in the 3rd quarter, real disposable income fell The purchasing manager’s index is down. Government spending was up.
And finally, it seems that there are other areas of the world with much, much bigger rises in economic activity.
So when Larry Kudlow wonders why the Bush Administration is not shouting about how great the economy is, it might just be because it only looks great from a distance.