With the blistering pace of retail sales and home construction/sales in the third quarter, folks were expecting a bit more than what they got out of this morning's GDP report from the Commerce Department.
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 3.7 percent in the third quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.3 percent. . . .While in normal times 3.7% would be considered just fine, these are not normal times. GDP growth these days translates very poorly into wage/salary growth or job creation, as I've already discussed. Moreover, economists were hoping for much more in the third quarter.
The major contributors to the increase in real GDP in the third quarter were personal consumption expenditures (PCE), equipment and software, exports, government spending, and residential fixed investment. The contributions of these components were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.
Analysts were predicting that the economy, which Federal Reserve Chairman Alan Greenspan had said hit a "soft patch" in the late spring, would gain traction and expand at a more brisk 4.3 percent rate in the third quarter.The biggest turnaround in the GDP figures for 2004:III was for personal consumption expenditures. In 2004:II they grew a mere 1.6%; in the third quarter they surged a whopping 4.6%, led by a big 16.8% rise in expenditures on durable goods. Faithful readers of the Globblog will remember that incentive-driven car sales frenzy in September. In fact, motor vehicle and parts consumption constituted a full 80% of the growth in durable goods consumption for the quarter, and that after eroding overall durable goods consumption numbers for nine straight months (2003:IV-2004:II). Without the surge in car and truck sales (and assuming Americans would have saved that money rather than spent it on something else -- let me live in my fantasy world for just this sentence, already), 2004:III real GDP growth would have been a mere 2.6%.
With all that consumption, one might think that Americans' income was rising at a healthy clip as well. One might also be wrong. Real disposable personal income rose just 1.4% in 2004:III, the slowest pace since the recessionary days of late 2002. As a result personal savings was driven into the netherworld. The savings rate in 2004:I was 1.0%, and in 2004:II, 1.2%. In the third quarter, the personal savings rate dropped to an incredible 0.4%.
Let this sink in: in 2004:III, Americans saved out of their disposable income a mere $35.0bn. No wonder we're so desperately dependent on foreigners to float our annual $420bn budget deficit.
The result of all this spending without income is that over the first three quarter of 2004 the United States has tallied a personal savings rate of just 0.9%. If the fourth quarter savings numbers come in under 1.0%, we're looking at chalking up the lowest annual personal savings rate since 1933, the depths of the Great Depression.
Enjoy your 2005.