The pick up in economic growth that was just announced this quarter doesn’t comfort me. In fact, it shows why our economy is still in what I believe is a structural decline. Yes, growth was up 2.8% in the quarter ending September, much closer to America’s normal trend growth rate of 3& or above than it has been in a while.
But the reasons for growth matters as much as the number itself. In this case, the reason the economy grew faster was because businesses were stocking up on inventories, which were low because the economy had been growing so slowly for so long. At some point, you run out of stuff in factories and stores and you have to buy more. That point came in the third quarter. But it doesn’t mean that it will come again next quarter. In fact, most economists predict growth will go back down, in part because of the lingering effects of the government shutdown.
There’s one bit of 3rd quarter good news which is that pre-shutdown, the public sector was no longer dragging down growth. Third quarter government consumption increased slightly, in part because city and states have started spending again. They may be enough to keep the public sector portion of the economy at least flat, if not slightly up, going forward. That’s been a big headwind over the last year, since the sequester cuts began kicking in.
But the biggest worry in the global economy right now isn’t growth, it’s flat incomes. Sadly, the third quarter figures show that consumer consumption is still falling, with growth slowing to 1.5% from 1.8% the quarter before. I’ve said it before, but I’ll say it again—until people get raises and start spending more, you won’t see a robust economy in a country 70% dependent on consumer spending.