The U.S. economy expanded at a 2 percent annual rate from July through September, buoyed by a slight uptick in consumer spending and a 9.6 percent spike in government spending, according to the first of this quarter's three GDP reports.
Yes, the economy grew by only 2 percent, higher than the 1.8 percent rate originally predicted, and government consumption can be thanked for that.
“This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010,” Zero Hedge reports. “So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better.”
Growth increased from its 1.3 percent rate in the April-June quarter, the Commerce Department said Friday.
“The pickup in growth may help President Barack Obama's message that the economy is improving. Still, growth remains too weak to rapidly boost hiring. And the 1.74 percent rate for 2012 so far trails last year's 1.8 percent growth,” the Associated Press notes.
The slight improvement in economic growth can be attributed to a mild 2 percent uptick in consumer spending in the July-September quarter, up from 1.5 percent in the second quarter. However, even this number is pretty lousy when you take into account the fact that consumer spending, which drives about 70 percent of economic growth, missed expectations of 2.1 percent increase:
Businesses have grown more cautious since spring, in part because customer demand has remained modest and exports have declined as the global economy has slowed.
Many companies worry that their overseas sales could dampen further if recession spreads throughout Europe and growth slows further in China, India, and other developing countries. Businesses also fear the tax increases and government spending cuts that will kick in next year if Congress doesn't reach a budget deal.
But, as mentioned in the above, this is just the first of three third-quarter GDP reports. The second and final reports won't be released until after the election.
"The real question is what the second and third Q3 GDP revisions will show," the Hedge notes. "Recall that Q2 GDP initially came out at 1.5%, then was revised to 1.7%, until finally coming to rest at 1.25%."
Final Thought: Oddly enough, certain members of the media are trying to spin these pretty poor, albeit slightly better, numbers in a positive light.
But as the American Enterprise Institute’s James Pethokoukis reminds us: “In its 2011 forecast, the WH predicted 3.1% growth in 2011, 4.0% in 2012 and 4.5% in 2013, 4.2% in 2014.”
How’s that for perspective?
UPDATE -- Republican presidential candidate Mitt Romney responds to this morning GDP report [h/t Human Events]:
Today, we received the latest round of discouraging economic news: Last quarter, our economy grew at only two percent, less than half the 4.3% rate the White House projected after passing the stimulus bill. Slow economic growth means slow job growth and declining take-home pay.
This is what four years of President Obama’s policies have produced. Americans are ready for change – for growth, for jobs, for higher take-home pay. Paul Ryan and I will deliver it.
UPDATE II -- Following the release of today's GDP numbers, the White House's Alan B. Krueger issues the following statement [emphases added]:
Today’s report shows that the economy posted its thirteenth straight quarter of positive growth ... Over the last thirteen quarters, the economy has expanded by 7.2 percent overall, and the private components of GDP have grown by 10.1 percent. While we have more work to do, together with other economic indicators, this report provides further evidence that the economy is moving in the right direction.
To strengthen economic growth and increase job creation, President Obama has proposed to Congress a plan that would help State and local governments retain and hire teachers and first responders, would assist the construction sector and economy of tomorrow by rebuilding and modernizing our Nation’s infrastructure, and would give small businesses tax cuts to encourage them to increase payroll. President Obama also proposed extending tax cuts to protect middle class families and virtually every small business owner from getting a tax increase at the beginning of next year. Extending these tax cuts would provide more certainty for the economy for 98 percent of American families and 97 percent of small business owners.
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The Associated Press contributed to this report. Front page photo courtesy the AP. This story has been updated.