JONATHAN COHN OCTOBER 29, 2010
GDP grew at a 2 percent annualized rate in the third quarter, which confirms two things: the economy is still in the dumps, and it won’t be getting much better any time soon. The numbers were in line with estimates, and they’re good news in that they’re higher than the second quarter’s 1.7 percent rate. But it’s still far too slow to offer much hope to the unemployed.
The Economic Policy Institute’s Josh Bevins argued back in April that three years of growth at around 3 percent would still leave unemployment over 6 percent; now we’re barely growing at two percent, meaning our situation will be even worse. It’s a fear shared by Council of Economic Advisers chair Austan Goolsbee, who said in a statement, “faster growth is needed to bring down the unemployment rate more quickly.”
And today’s number is just a preliminary estimate and very well may be revised downwards—the second-quarter estimate, later revised down to 1.7 percent, originally came in at 2.4 percent. That means the Bureau of Economic Analysis initially overstated growth by about 50 percent.
Breaking it down, there are also a few worrying signs in the underlying data. Residential fixed investment (spending on the construction of new homes) was down 29.1 percent; this suggests that the housing market is still in bad shape, despite some positive signs last quarter. And downturn-forced cutbacks mean state and local spending is continuing to drag down GDP growth, exactly the opposite of what we want government to do when the economy is in trouble. Personal-income growth has slowed, too, which isn’t a good sign.
In short, the numbers weren’t terrible, but they offered little hope that recovery is just over the horizon.
Note: this post is edited from an earlier version, which, due to a content-management-system error, improperly said that the GDP growth figure was for the second quarter. It was for the third quarter. I regret the error-AH