The Economy Is Speeding Up, So Why Are Businesses So Scared?

If the latest U.S. growth figures tell us anything, it's that American businesses and American consumers are living in two very different worlds right now. 

The country's economy expanded at a 2 percent rate from July through September, up from 1.3 percent during the three months before. Broadly speaking, this is good news -- the economy appears to have sped up a tad, although we won't really know by how much until the revisions come out in November.

Reuters_GDP_Q3.gif

But the data still tell a very clear story. As you can see in the second chart above, personal consumption (in dark blue) is still growing. Shoppers are headed back to stores, but businesses are pulling back their investment. Spending on in things like factory equipment and new buildings, which has helped carry the economy through much of the recovery, contracted at a 1.3 percent rate. On the other hand, the market for residential real estate is grew at a 14.4 percent rate.

There are a few potential reasons for this increasingly apparent split, which the Daily Beast's Matthew Zeitlin and Business Insider's Joe Weisenthal have been writing about over the past month. Consumers have a fairly narrow view of the economy, and what they're seeing is relatively bright (emphasis on relatively). The job market is healing slowly but steadily. After finally bottoming out, housing prices have staged a recovery, and construction is picking up. Meanwhile, the higher home values go, the more comfortable Americans tend to feel opening their checkbooks at the mall or their local Chevy dealer. 

Businesses, on the other hand, take a broad view of the economy, and what they're seeing is quite dim. Specifically, Europe still isn't out of the woods and China is slowing. That's likely why exports shrank for the first time in more than a year this last quarter, as well as why we've seen an atrocious round of corporate earnings reports these past weeks. And if there are fewer customers across the world buying Caterpillar bulldozers, Ford Fiestas, or Dow Corning silicone, there's less reason for those companies to invest. Meanwhile, there's another, perhaps even more important factor at play: our impending fiscal cliff. If Congress doesn't act, the country will see a massive, automatic round of spending cuts and tax hikes which could put a massive dent in U.S. growth. It's the the sort of dire possibility that people worry about in corporate boardrooms, but necessarily across kitchen tables. 

Which brings us to one more important aspect of this GDP report: for the first time since 2010, government spending added to growth. That shift was driven mostly by a 13 percent increase in defense outlays, although non-Pentagon spending was up as well. State and local cuts also eased up. If we can keep ourselves from walking off that fiscal cliff, it means we might not have to worry about government austerity dragging us down any longer. 

So Congress has one simple task for now: Don't push us off the cliff. Should be simple, right?

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Jordan Weissmann is a senior associate editor at The Atlantic.

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