President Obama, back in 2009:
Even as we clear away the wreckage of this recession, I have also said that we cannot go back to an economy that is built on a pile of sand — on inflated home prices and maxed-out credit cards, on overleveraged banks and outdated regulations that allowed the recklessness of a few to threaten the prosperity of us all. We must lay a New Foundation for growth — a foundation that will strengthen our economy and help us compete in the 21st century.
OK, putting aside for a moment the president’s poor grasp of what caused the Great Recession, has the Obama economic recovery been built on a “New Foundation?” Well, let’s look at the third-quarter GDP report that came out today:
1. Government spending — meaning borrowed money — played a big role. IHS Global Insight: “GDP growth improved to 2.0% in the third quarter from 1.3% in the second – so is growth accelerating? We don’t think so. Bear in mind that the entire improvement came from government spending (mainly defence), which added 0.7 percentage point to growth after cutting 0.1 percentage point from the second quarter. That bounce will not be repeated.” Action Economics called the report “goosed” by government spending.
2. So did consumers — by spending down savings. Personal consumption expenditures account for 1.4 percentage point of the 2 percentage points of GDP growth. But the personal saving rate — personal saving as a percentage of disposable personal income — fell to 3.7% vs. 4.0% in the second quarter.
3. But where is the investment? Business fixed investment fell for the first time since first quarter 2011. And equipment and software spending, according to JPMorgan, “had its worse quarter of the expansion, and forward-looking indicators aren’t promising for 4Q.”
This doesn’t seem to be a recovery, to use another presidential catchphrase, that’s “built to last.”
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