Uncle Sam's Bureau of Economic Analysis today revised economic growth in the third quarter downward a second time. After originally estimating annualized growth of 3.5% in October and then reducing it to 2.8% in November, the bureau's "third estimate" issued today came in at 2.2%.
If that "third estimate" term seems odd, it's because this is only the second quarter the BEA has labeled its reports "first estimate," "second estimate," and "third estimate." Previously, the respective terms for the three monthly reports were "advance," "preliminary," and "final."
If you're thinking that today's BEA figure is bad news, you obviously haven't gotten the word from Associated Press reporter Jeannine Aversa, who after a brief "not to worry," seemed to wax almost rhapsodically over how great the current quarter and next year will be (a partial screen cap of Aversa's first six paragraphs is saved here for future reference, fair use, and discussion purposes; bold is mine):
Recovery likely strengthening after weaker 3Q
All signs suggest the economic recovery will end the year on firmer footing despite a report Tuesday that the economy grew at a 2.2 percent pace in the third quarter, less than previously thought.
The Commerce Department's new reading on gross domestic product for the July-to-September quarter was weaker than the 2.8 percent growth rate estimated a month ago. Economists had predicted this figure would remain the same in the final estimate of the quarter's GDP - the value of all goods and services produced in the United States.
The main factors behind the downgrade were that consumers didn't spend as much, commercial construction was weaker, business investment in equipment and software was softer and companies cut back more on their stockpiles of goods.
Based on the recitation in the bolded paragraph, that may leave artificial and unsustainable government efforts like the so-called stimulus and Cash for Clunkers as the only reasons why there was any growth at all. Whoopee.
Continuing, we find Aversa reporting on fourth quarter guesstimates, and cites another government stimulant as an important factor:
And many analysts still think the economy is on track for a better finish in the current quarter. One sign was a separate report Tuesday that home resales surged last month to their highest level in nearly three years, thanks to an extraordinary level of federal support. The report added to evidence that the housing market, which led the country into recession, is on the mend.
The economy is probably growing at nearly 4 percent in the October-to-December quarter, analysts say. A few peg it closer to 5 percent. If they're right, that would mark the strongest showing since 5.4 percent growth in the first quarter of 2006 - well before the recession began.
.... Much of the third quarter's growth was supported by government stimulus spending. The Cash for Clunkers rebates and a tax credit for first-time home buyers buoyed sales of cars and homes. The clunkers program ended in August, though the tax credit has been extended and expanded beyond first-time buyers.
Aversa waited until the 18th of her 21 paragraphs for her reality check:
It's unclear how much the recovery might weaken once the government withdraws stimulus programs put in place to combat the financial crisis and the recession. If consumers pull back on spending, the economy could tip back into recession. Economists at Capital Economics predict the recovery will slow, with the economy's growth fading to just 1.5 percent in 2011.
Today's GDP report really reinforces the point so many sensible observers from the Wall Street Journal to Investors Business Daily to yours truly (not necessarily in that order :-->) have been making for quite some time. A Journal editorial puts it most succinctly:
The .... biggest problem is that Congress and the President have erected the biggest overhang of economic policy uncertainty that anyone can remember.
As long as that overhang remains, it's likely that actuals will continue to underperform expectations, and that reporters like Jeannine Aversa will have to reach ever deeper into their wells of false enthusiasm.
Graphic found at LostWackys.com.
Cross-posted at BizzyBlog.com.
