The government’s latest reports that the economy grew at a 3.6 percent annual rate in the third quarter and created 203,000 new jobs last month left out a lot of caveats.
Moreover, the network news media’s hyperbolic reports that the economy was surging at full throttle, and that the job market was strengthening, needs to be taken with a large grain of salt, too.
The truth is that the economic-growth rate isn’t what it’s cracked up to be, and the employment figures contained a large number of “part-time” holes.
The Commerce Department’s surprising report that the gross domestic product (GDP) expanded by 3.6 percent between July and September was much more the result of a backlog in unsold business inventories caused by weak consumer demand than of a growing economy. The Obama administration crowed that the GDP figure showed the economy was in full recovery, but economists saw many weaknesses beneath the figures.
“With third-quarter GDP growth at 3.6 percent, businesses should be adding more jobs, but much of that growth was from additions to business inventories as consumers remain tightfisted and goods stay on the shelves,” wrote University of Maryland business economist Peter Morici.
The bone-hard economic reality behind this percentage is that “overall consumer demand contributed about 1 percentage point to growth, whereas inventories accounted for 1.7 percent,” Mr. Morici explained.
Indeed, The Washington Post reported Friday that the third-quarter pace “is unlikely to be sustained through the end of the year.”
“The recovery fundamentally remains on the same slow and steady track that it has followed since the recession ended in 2009,” the newspaper said, adding that many economists now say they expect the economy’s fourth-quarter growth to decline to “less than 2 percent.”
The news media’s exaggerated reports that Americans were pouring into the stores and buying up goods left and right doesn’t hold up to closer inspection, either.
“Major apparel retailers report huge stocks of unsold goods entering the final weeks of holiday shopping. More broadly, Black Friday weekend disappointed their expectations for stronger sales than last year,” said Mr. Morici.
Notably, the Reuters news agency reported that third-quarter consumer spending was the slowest since the final three months of 2009. Consumer spending accounts for more than two-thirds of all U.S. economic activity, but it was revised downward in the government’s latest figures to a barely breathing 1.4 percent rate.
That’s why many economic officials expressed caution in making any firm projections about the Obama economy in the coming year. “I’m not prepared to interpret the revised third-quarter [GDP] number as an indication that the economy is on a much stronger track,” Atlanta Federal Reserve Bank President Dennis Lockhart told reporters last week.
The reason why he and other economists were voicing such caution in their forecasts is that large retail inventory in the face of weak consumer demand means a sharp fall in economic growth in the fourth quarter. Recent data seem to support that. “Orders for manufactured goods fell 0.9 percent in October,” Reuters reported.
There are also reasons to question the sustainability of last week’s Labor Department survey, which reported that the economy added 203,000 jobs in November. There is less here than meets the eye.
Many reports over the course of the year have shown that employers are reducing full-time employment in favor of part-time workers. Some of this is a result of weaker business sales, but also because of higher payroll costs under the Obamacare mandates for insurance coverage.