The economy grew at a 2.8 percent pace last quarter, as the recovery got off to a slower start than first thought.The gain was pretty much a one-shot deal caused by the cash for clunkers shifting sales into the quarter, and the homeowners tax credit that people thought would expire in November.
The Commerce Department's new reading on gross domestic product wasn't as energetic as the 3.5 percent growth rate for the July-September period estimated just a month ago.
The main factors behind the downgrade: consumers didn't spend as much, commercial construction was weaker and the nation's trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.
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The new reading on GDP, which measures the value of all goods and services produced in the United States — from machinery to manicures — was a tad weaker than the 2.9 percent growth rate economists surveyed by Thomson Reuters had expected.
Still, the good news is that the economy finally started to grow again, after a record four straight losing quarters. The bad news is that the rebound, now and in the months ahead, probably will be lethargic.
The continuing problems facing the economy are immense and interconnected. Unemployment continues rising, and that affects foreclosures as people simply lose the income necessary to hold on to their homes. That affects sales - both in terms of prices and demand, and the homeowner tax credit can mask those problems for only so long before the pressure pushes prices down again. Indeed, prices may have risen 0.3% in top 20 markets according to Case-Shiller, but the prices declined in nine metropolitan regions, including New York and Boston. A broader index declined:
The Case-Shiller index covers about 45 percent of the United States housing market. Also released Tuesday was the S&P/Case-Shiller National Home Price Index for the third quarter, which covers about 75 percent of the market.We're in for a rough ride through at least the second quarter of 2010, if not longer.
The national index showed an 8.9 percent decline in the third quarter of 2009 versus the third quarter of 2008, a substantial improvement over the 14.7 percent decline in the annual rate of return reported in the second quarter of 2009.
The Case-Shiller numbers lag by a month the report on existing home sales, which was issued earlier this week for October. Existing home sales jumped 10.1 percent to the highest level in two years, better than analysts had expected. Much of the increase was attributed to the $8,000 first-time buyer’s tax credit.
While increased sales should push up prices, Ms. Maitland said the overabundance of inventory was acting as a brake on that process. “You can look down the street and have 10 houses to choose from,” she said.
I've got that sinking feeling. 23% of homeowners are underwater on their mortgage commitments, which means as the unemployment rate creeps higher and more people feel the pinch, more people are going to default on their mortgages, making an already precarious situation worse. The federal homeowner assistance programs don't deal with this situation; they deal primarily with those who are in mortgages that can be refinanced at a lower interest rate. The assistance programs do not help when the ability to repay is no longer present.
It seems that the GDP numbers are even worse than I've made them out to be, precisely because the quarter's numbers are goosed by a massive federal government expenditure - the stimulus - the money for which we lack and will be repaying for decades to come. Without the federal stimulus, there was a 0.5% decline in the economy, not exactly robust, and definitely not a sign of a recovery by any stretch. The private sector is barely hanging on and the government spending is merely masking the misery, but that isn't going to last much longer.