Last Thursday, the Bureau of Economic Analysis at Department of Commerce released preliminary Third Quarter GDP figures. Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009, the first sequential growth in four quarters. The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment.
The figures released also mark the strongest growth rate in two years and a pause in the economy's dark slide. Over the past 12 months, the US economy had contracted 2.3 percent. In 2008, the American economy grew a scant 1.1 percent shedding 2.6 million jobs, a number equal to the number of jobs found in states such as Wisconsin, Missouri or Maryland. And throughout 2009, the US economy has continued to shed jobs. Since the start of the recession in December 2007, the number of unemployed has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent. The job losses have been particularly brutal in a number of sectors. Employment in manufacturing has contracted by 2.1 million since the onset of the recession while the construction industry has lost another 1.5 million jobs. So in looking at this recovery, one must ask for whom.
Nearly 63 percent, or 2.2 percent, of the 3.5 percent increase in GDP was due to temporary government tax credits to consumers that have either expired or are set to expire before the end of the year. For example, durable goods spending surged 22.3 percent boosted by the Federal government's "cash-for-clunkers" program. Federal spending outlays added another 0.6 percent to growth. But for the fiscal stimulus, we would be looking at an essentially flat-lined third quarter.
Furthermore though corporate profits - 81 percent of the S&P 500 topped expectations - rebounded, most of the increase in profit, however, came from cost cutting rather than from robust sales, which should raise concerns about the sustainability of the nascent economic recovery. And corporate cost cutting was achieved largely by depressing wages and cutting employees' hours. The Obama recovery, such as it is, is little more than another vast redistribution of wealth from the bottom to the top. Wall Street gains mask Main Street pain. The players may be different, but this is still a neo-liberal game being played.
On Meet the Press, Secretary Geithner described the growth in the economy as "broad based." He must have a rather narrow definition of "broad based." This is a recovery that is leaving millions of Americans further behind and eroding living standards. While corporate profits rise, real average weekly earnings continue to fall. Average weekly earnings in the manufacturing sector rose by only 0.7 percent in September, as the average number of weekly hours worked fell to a record low of 33 hours. That's the lowest annualized weekly earnings growth since such data began to be tracked in 1964. Overall, the BLS reports that average weekly earnings have fallen by 1.9 percent since the beginning of the year with disposable income decreasing 3.4 percent in the quarter. It is simply incumbent upon the Administration to do more for the average American worker. The budget was a start but the Administration needs to address the structural unemployment problem and fully commit to broad redistributive policies that will create truly broad-based prosperity and not just one for investment bankers.
The economy has still has some major hurdles to confront. In February I began harping on the coming crash in commercial real estate. US commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. Thankfully, this is beginning to get some press as billionaire investors Wilbur Ross and George Soros "freak out."
There continue to be deflationary pressures in a wide range of asset classes: housing and rents being the most noticeable. But there are also inflationary pressures in the commodities markets. Since the start of the year, oil prices have more than doubled, copper is up more than 120 percent and gold has gained more than 10 percent. Zinc prices despite a 5 percent decline in demand are up over 75 percent. And while food inflation has so far remained in check, there are warning signs of creeping food prices.
It is to the Administration's credit that we have averted a systemic crash. However, as the Federal Reserve and the Treasury Department begin to wind down the extraordinary programs implemented over the past year, the likelihood of further financial turmoil is not just extant but high. And for too many Americans, the financial turmoil never ceased to begin with.
Below the fold, the thoughts of Joseph Stiglitz on the recovery.