How much of the third-quarter GDP growth of 3.5%, which will be revised several times, is due to the “Federal Stimulus” money?
First, consumer spending contributed 2.36% to GDP growth. (Economists said the massive stimulus injected by the U.S. government, such as the cash for clunkers program that lifted car sales, helped boost consumer spending.) That leaves 1.14%.
Second, U.S. business inventories added 0.94% to GDP, because inventories decreased $130.8 billion, compared to $160.2 billion in the second quarter. That is right, a negative is a positive. That leaves .2%.
Third, business spending reduced GDP by 0.24 percentage points. Business spending would have been an even greater drag on GDP if not for housing. (Residential fixed investment grew by 24% thanks to the $8,000 first time homeowners tax credit.) See, housing is a component part of business spending in the calculation for GDP by the expenditure approach.
Fourth, one can deduce that Federal Spending increased GDP by the remaining .2%.
There you have it. The preliminary 3.5% GDP growth was due almost entirely to the cash for clunkers program, which by the way simply brought demand forward to the third quarter, first-time homeowners tax credit, and government spending.
What bothers me the most about the GDP numbers was the decline in personal and disposable incomes for the third quarter. Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second. Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. That amounts to a major reduction in consumer purchasing power going forward.
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