Hold the singing

29 October 2009 By Martin Hutchinson

US growth of 3.5% looks like a bounce into recovery. But with cash for clunkers and government spending driving the numbers, it might as well be called Government Domestic Product. This approach caused a nice, but temporary, bounce in 1933. History may repeat itself.

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Real US GDP increased at an annual rate of 3.5% in the third quarter, according to the advance estimate published October 29. This was the first such increase since the second quarter of 2008.

Of the 3.5% annual rate increase, motor vehicle output, stimulated by the cash for clunkers scheme contributed 1.66%, federal government spending and investment contributed 0.62%, and the swing from an annual rate of $46bn in inventory destocking to $29bn in restocking 0.94%.

Housing investment accounted for 0.53% of the increase.

Federal government spending increased at a 7.9% annual rate in the third quarter, following an 11.4% increase in the second.

Real personal income declined at an annual rate of 0.5%, disposable personal income at an annual rate of 0.8%, while personal consumption expenditures rose at an annual rate of 3.4%. The savings rate fell from 4.9% in the second quarter to 3.3%.

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