Now That's What I Call Growth

In the midst of the ever-lengthening American political season, it can be hard to get an objective assessment of anything.  But for those who continue to put a negative spin on economic news, the release of the third quarter Gross Domestic Product (GDP) statistics for the national economy poses a question.  That is, if the economy is in such terrible shape, why are consumers and businesses spending like sailors?

The news that the overall economy grew at a blistering 7.2 percent annual rate during the months July through September effectively closes the book on the 2001 recession.  Stories about economic malaise and widespread hardship are so far out of whack with the facts on the ground that they should remain on the cutting room floor.

That doesn't mean the economy is in perfect health, by any means.  The economy has seen ups and downs in growth since the recovery began, and few of us will truly relax until we have a few months of solid job growth behind us.

But one thing we don't have to worry about is the recovery itself.  The stimuli of low interest rates, strong money supply growth, and

deficit spending by Congress have kicked almost every kind of economic activity up a notch.

Consumer spending, in particular, broke out in a big way.  Led by a whopping 26.9 percent runup in spending on durables, household spending grew faster in the third quarter than anytime in the past six years.  Other indexes notwithstanding, this is the ultimate measure of consumer confidence.

Businesses are also bullish about our future economic prospects, based on their two-fisted investment spending.  After more than two years in the toilet, nonresidential investment is getting back in the groove, and for Indiana , it’s not a moment too soon.  Empty order books for capital equipment have pushed many manufacturers here to the edge of their existence, but the third quarter's 11.1 percent gain -- the first double-digit growth in three years -- will put a bit more air in their sails.

Even the trade sector got into the high-flying act.  Buoyed by the weakening dollar, exports turned in their best performance in more than a year, growing at a very healthy 9.3 percent rate.  On the other side, imports were stagnant, which meant that domestic producers of goods and services

felt the full brunt of the increased spending.

If the third quarter GDP report proves anything, it is that businesses and consumers alike have placed their bets on a growing economy.  But it also establishes something that is equally important -- the days of stagnant job growth will soon be over as well.  The economy simply cannot sustain the recent increases in productivity that have helped perpetuate what has come to be known as the jobless recovery.

The behavior of inventories in the most recent GDP release underscores that point.  Higher sales levels require higher inventories, yet in the same quarter that the economy broke out of its rut, inventories actually fell economy-wide.  That puts the gun to producers' heads to find a way to replenish their stocks and meet surging demand at the same time.

From an Indiana perspective, this is good news as well.  The challenges that face our economy won't be washed away by a single quarter of growth in the national economy, of course.  But it is much easier to address them with the U.S. economic growth engine started than when it is stalled.

Patrick M. Barkey