The Problem May 2 Percent GDP Growth

market have a nice surprise on Friday morning when the Commerce Department reported that the U.S. economy will grow 2 percent (PDF) in the third quarter. It is better than the consensus estimate of 1.8 percent of economists surveyed by Bloomberg, and a good bit stronger than the 1.3 percent pace in the second quarter. Investors were clearly disappointed expectations, the Dow Jones showed nearly 25 points during the first few minutes in the morning trade. But as they dig into the numbers, they were surprised smile turned into a grin, and a sell-off that lasted for nine days continuously apace.That 'because the number of sections 2 percent looks much better than it actually is, which is scary because 2 percent is not exactly stable to begin with. "Wan" may actually be redundant. It is clearly not enough to eat growth rate at 7.8 percent unemployment life. Or generate enough tax revenue to reduce the deficit. A good chunk of that growth of 2 percent from a strange surge in defense spending to mask some major pretty ugly, especially on the business side things.After fell for eight previous quarters, total consumption government and investment grew 3.7 percent during the third quarter. Much of that comes from the federal government, which increased 9.6 percent. And most of that is from national defense spending, which surged 13 percent, after a string of three straight quarterly contraction of 0.2 percent, 7.1 percent, and 10.6 percent return in the fourth quarter of last year. That's a head-scratcher for many economists. Julia Coronado, chief North American economist for BNP Paribas (BNP), said he and his team are called the Bureau of Economic Analysis on Friday morning to ask about the blip in defense spending. "They say this category associated with the maintenance," said Coronado.Given withdrawals in Iraq and Afghanistan, defense spending has so far this fiscal year under the budget, Coronado said: "So they use or lose "That spending has gone to any of the planes and tanks of other types of equipment in the field .. Given the automatic cut in defense with fiscal cliff, it may be a little last hurray for defense contractors. Sudden surge in spending on national defense and encouraging investment at a time adjusted annual rate of $ 807.8 billion to $ 834.6 billion. "The idea that we have collected a large number of defense budget for the first quarter is not positive for the economy," said Mike Englund, chief economist for Action Economics. "Excellent find the headline figures to 2 percent, but certainly depleted defense increasing activity in the fourth quarter." So this case "Chicago" at the White House goosing the numbers in the top- up to the election, such as Jack Welch is not so subtly hinted after work surprise earlier this month? Not a chance. "This is a big difference between Jack Welch administrative claim Cook's book," Englund said. "It's completely different animal." Defense spending tends to be thick, because it is mostly for big-ticket stuff. Purchase of additional aircraft or tank could spike in spending by several hundred million dollars. According to Englund read about the data, spending rose in May and June, razed in July and August, and then rose again in September. The understanding of the volatility that is a "problem sifting through large procurement projects went through," said Englund.This also seen situations where the lack of resolution regarding the fiscal cliff Obama administration seems to have benefited less than two weeks before the election. Defense analyst Michael O'Hanlon, a senior fellow at the Brookings Institution, wrote in an e-mail: "Looming absorption convince people to complete a contract with the power of last year's budget so that it will not take risk begins lost. "In other words, smoke 'em while captured' em.More disturbing, though, is how bad the investment business will continue to grow. Spending on equipment and software is completely flat from last quarter. The last time that happened in the second quarter of 2009, during the recession fully teeth. Meanwhile, the consumer really dizzy, sharpen differences with melancholy. Private consumption rose 2 percent. Cars and trucks will continue to fly numerous car sales grew at an annual rate of 14.9 million, which was the fastest since March 2008. Consumer sentiment is higher than this since September 2007. That is just plain weird. Ignorance, it seems, really is bliss. Coming fiscal cliff looming just a few months away, the consumer is "happy to realize," said Coronado. "That humming along the cliffs do not understand what this means or how they will be affected."


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