GDP number not much to get excited about

The United States Department of Commerce said this week that the advance estimate for third quarter GDP is 2.8 percent, up from 2.5 percent in the second quarter.

Some estimates pegged the GDP number to come in roughly 0.5 percent less than it would have, had there not been a shutdown. On the surface, it is fair to assume that number is not terrible, given the many head fakes thrown at consumers in this new and apparently permanent era of government dysfunction.

To preface that, I think we all know that government dysfunction, especially on the federal level, does not necessarily “scare” anyone like it may have in the past. After all, we see so much of it on a daily basis, it has become more ho-hum than something taking us by surprise.

A blog posting by Jason Furman, Chairman of the Council of Economic Advisers at the White House, observed that the economy grew at its fastest pace in a year during the third quarter, which he explained is an indication that the recovery was gaining traction in the months before the government shutdown.

“GDP growth was boosted by a positive contribution from consumer durables purchases, the continued recovery in the housing sector, and net exports,” Furman wrote. “We now have an opportunity to build on this progress by increasing certainty for businesses and investing in jobs and growth, while avoiding the types of self-inflicted wounds that restrained the economy in the early part of the fourth quarter.”

The last part of that regarding “self-inflicted wounds provides a bit of a pause, as there is a chance the shutdown could be front and center again not long after the new year comes.
But, as Furman, points out, the 16-day government shutdown is likely to put a damper on fourth quarter GDP output for a whole host of reasons such as “hundreds of thousands of Federal workers went temporarily unpaid, families were unable to travel to national parks, oil and gas drilling permits were delayed, Small Business Administration loans were put on hold, and licenses to export high-tech products could not be granted, to name just a few effects.”
He added that several forecasting groups have estimated that the shutdown will reduce annualized real GDP growth in the fourth quarter by between 0.2 and 0.6 percentage point, with early indicators of economic activity in October showing that the shutdown weighed on the economy and on consumer sentiment.

This is also playing out in supply chain-related sectors, too, with expectations for holiday shopping somewhat tempered. For example, the National Retail Federation Federation is forecasting that the average holiday shopper will spend less 2.5 percent less this year than in 2012 which is the first forecasted decline since 2008.

And ongoing evidence of modal trade downs to cheaper modes with longer transit times are continuing to resonate with shippers, too. It only makes sense, given the continued economic uncertainty in the U.S., coupled with global economic volatility in other parts of the world.

More needs to happen in order for the economy to get into a better place in order to deliver a higher GDP number; that much is certain. Progress is being made in certain areas like housing and automotive sectors, coupled with strong manufacturing growth we have seen in recent months, too.

There is optimism we will get back to a better place. As has become the norm, the question remains when?