The Bureau of Economic Analysis released third quarter GDP figures late last month indicating that the US economy grew at a torrid pace of 5% (annualized). This is a remarkable growth rate that would indicate the strongest GDP growth in a decade.
It is often difficult to properly interpret economic figures published by the government since not only are they complex and based on many variables, but also due to political pressures often exerted on governmental agencies to gin figures.
This Blog is concerned about the reliability of the current figures given the inaction of the Federal Reserve. Specifically, if the GDP actually grew at a 5% annualized rate during the third quarter, it is reasonable to have expected the Fed should to have started raising interest rates in order to forestall an overheating of the economy. The fact the Fed continues to leave rates at historically low amounts indicates that it is either not doing its job properly or it does not believe the GDP growth figures to be reliable.
Tony Sagami wrote an article titled Connecting the Dots for mauldineconomics.com that raises specific concerns relating to Q3’s published GDP growth figures that includes:
- The largest contributor to the GDP growth was in Net Exports that occurred because of downturn in imports, a counter indicator to growth.
- Nearly 20% of the Q3 GDP growth came from government spending, mainly on defense. This is not long-term growth indicator.
- Nearly 50% of Q3’s GDP growth came from an area called Personal Consumption Expenditures. This area was aided by increased household spending on medical care; i.e. Obamacare. Wasn’t Obamacare supposed to be revenue neutral or an aggregate cost cutter?
- Sagami points out that total Goods spending only increased by 27 basis points with durable goods actually declining.
Sagami’s offers a plausible explanation as why the Federal Reserve is not moving quickly to increase interest rates. It also adds color to the lack of transparency of governmental issued economic data.