Market Talk

Don't celebrate GDP growth just yet

GDP increases for first time in more than a year as government stimulus boosts consumer spending. Hold the champagne, however, as a weak labor market continues to subdue the recovery.

GDP rose 3.5% in 3Q, higher than the 3.2% growth economists were expecting, and much better than Goldman Sachs’ downwardly revised estimate yesterday of 2.7% growth.

“At long last, the American economy is growing again,” the Economist’s Free Exchange blog says. “Jobs, however, are still tricky to come by.”

Jobless claims remain elevated at 530,000 and even though continuing claims fell to their lowest levels since March, this mainly reflects exhaustion of benefits.

“So while the end to contraction has stopped the labor market bleeding, recovery has yet to begin the healing,” blog says. “Growth is good, but absent job creation it is difficult to get too excited.”

So, does 3Q GDP growth mean the longest recession since the Great Depression is actually over?

Tough to say at this point, especially considering all the factors the National Bureau of Economic Research uses to define a recession, FusionIQ CEO Barry Ritholtz writes at The Big Picture.

Jobs are still being lost at a rapid pace, industrial production is soft and retail sales have been essentially flat. NBER believes the economy’s either expanding or contracting, but Ritholtz says a third possibility should be considered: none of the above.

“The economy might have reached a state of stasis - a balance where it neither expands nor contracts,” he says.

Nevertheless, the 3Q GDP report showing growth isn’t exactly a surprise, especially considering clues have been manifesting in the “post-apocalyptic” economy for some time, James Picerno writes at The Capital Spectator.

“But the snapback effect has limited reach, as do the government’s various stimulus efforts,” he says.

The economy’s now moving into “uncharted territory,” as Japan in 1990s and US in the post-Great Depression period are a few comparisons, but “neither offers compelling insights beyond the immediate snapback period,” he says.

“The letters, and the solutions, for the period beyond the early post-crash period remain much more of a gray area with less-obvious policy responses, if any,” Picerno says.

(Image: NY Post)