GDP Up 3.5%, But Don't Be Too Optimistic

More

US GDP grew by 3.5 percent in the third quarter (July through September) of 2009, buoyed by government stimulus, consumer demand and thawing in the housing market. That's a little better than the 3.3 percent analysts expected it to grow and much better than the 0.7 percent it fell in the second quarter of this year. In fact GDP grew by the fastest clip in exactly two years. So why is everybody so down on the economy?


It's unemployment, which is still expected to hit 10 percent since the job market lags other economic indicators. By various calculations, consumer spending amounts to between 40 and 70 percent of GDP. But you don't get back to regular consumer spending if 10 percent of the population is officially unemployed and another six percent is looking for more work than they have. Even the White House expects unemployment to stay in the mid-9's for another year. In a nutshell, that's why the Great Recession probably won't give way to a Great Recovery.

The quarter might yet be a fluke -- a catch-up quarter created by a mirage of turning inventory and government stimulus programs like August's Cash for Clunkers and the $8,000 home buyer's credit, which runs out this month. What's more, an additional 7000 people are falling off unemployment benefit rosters every day. The public's appetite for deficit spending might appear to be full, but so long as the economy is starving for consumer demand the government needs to keep feeding it money. As I've said a couple times this week (along with Megan McArdle and Bruce Bartlett) the best way to maximize the velocity of federal stimulus dollars is to give them to people who are most likely to spend their next marginal buck. It's (still) time to extend jobless benefits in every state.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

The Time JFK Called the Air Force to Complain About a 'Silly Bastard'

51 years ago, President John F. Kennedy made a very angry phone call.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In