It’s official, GDP rises

In case you haven’t heard U.S. gross domestic product expanded at 3.5% in the third quarter. That number exceeded the consensus estimate from economists of 3.2%. This is the first rise in GDP since the second quarter of 2008. Technically this means that the recession is over, but try telling that to workers still unemployed. The positive GDP result was driven by consumer spending which was up 3.4%. That number contributed 2.36 points to the 3.5% economic expansion.

The Big Question: Will this number begin to restore consumer confidence?

An Answer: I don’t think so. The U.S. consumer seems to be particularly grumpy and in a deep funk. We have discussed the reasons why quite extensively, but they boil down to high unemployment; frustration with the corruption of U.S. business and government leadership; and 8 years of war. To shift consumer confidence there will need to be a reduction in unemployment, traction on regulatory reform, and light at the end of the war tunnel.

Another Big Question: Will this number begin to restore business confidence such that they start investing in people?

An Answer: It will take at least another 2 quarters of expansion to give businesses the confidence to begin hiring new workers. In the meantime look for businesses to begin to take advantage of a solidifying economy and record low interest rates to start financing new business investment. We are already seeing this start to happen. In the long run this should lead to an expansion of economic productivity. Once those projects create renewed profitability then U.S. businesses will start to hire workers again.

Conclusion: The good news is that the recession is officially over. I have been predicting this outcome for many months and was on the leading edge calling it. However, I am breathing a sigh of relief that GDP has officially expanded. Why? Because it is still shaky out there. A shock to the economy could still lead to further economic dips.

Jason