Markets are cheering the advance GDP data today. But when you break down the numbers, things are still pretty ugly. Government spending remains the only thing propping up the markets.
1.66%, or almost half, of the 3.5 increase in GDP can be attributed to Cash for Clunkers. CfC is over now, so expect a major hangover in Q4. Besides, this type of government spending is clearly unsustainable in the long run. According to the BLS release:
Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.
Increased Gov expenditures also boosted GDP significantly. Considering the fact that in 2009 it is estimated that 40% of gov spending will depend on debt, this is clearly not sustainable either. From the initial BLS report:
Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second. National defense increased 8.4 percent, compared with an increase of 14.0 percent. Nondefense increased 6.8 percent, compared with an increase of 6.1 percent. Real state and local government consumption expenditures and gross investment decreased 1.1 percent, in contrast to an increase of 3.9 percent.
Ugly Income Data
As Karl Denninger points out, the ugliest data is probaby the decrease in income and disposable income. BLS:
Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving — disposable personal income less personal outlays — was $364.6 billion in the third quarter, compared with $533.1 billion in the second. The personal saving rate — saving as a percentage of disposable personal income — was 3.3 percent in the third quarter, compared with 4.9 percent in the second.
Denninger’s commentary on the income data:
Forward the big problem is the deterioration in personal income. You can’t spend what you don’t have without credit creation, and that’s fallen off a cliff. The Fed’s credit reports continue to come in with huge contractions – this should not surprise, as demanding that banks lend to people who are seeing their income shrink is into the realm of pure idiocy.
In other news, the homebuyer tax credit was extended and expanded, as predicted. Gold is off to the races again today, as fears that the government plans to deficit-spend our way to prosperity are being shored-up again.