The good news is that GDP growth came in a bit better than expected—at 2 percent versus 1.8 percent, which is up from 1.3 percent in the previous quarter. This was front-page news in the weekend editions of the New York Times (NYT) and the Wall Street Journal (WSJ). For the first time in two years, government spending was a major driver of growth. Consumer spending was also a significant contributor, but it came at the cost of lower saving rates, so it may not be sustainable. Business investment dropped, as did exports, in the face of growing weakness in Europe and China.
The sustainability of the growth is questionable, given that government spending is very likely to decrease going forward; in addition, consumer spending is also likely to slow (at best) as the fiscal cliff tax increases come closer. Nonetheless, a good quarter.
There is a good chart on page A2 of the weekend WSJ that presents a very effective look at what comprises the U.S. economy and how it has changed over time. Consumer spending has grown; within that space, services are up big time but goods are down. Federal spending, surprisingly, is down overall, but state and local government spending is up. Interesting comparisons.
The bad news, of course, is Hurrican Sandy. The Monday papers led with the “Frankenstorm,” and even the BritishFinancial Times (FT) weighed in. Financial markets are shut down today, as is Commonwealth’s Waltham office and much of New York City. As bad as it is for the financial markets and their junkies, it is even worse for the political campaigns, whose plans have been upended by Mother Nature. That, in fact, is what drives an FT headline, “Sandy adds to election tension.” The common element among the political stories is that voter turnout could suffer, although there is not much consensus as to which candidate would be hurt the most by this.
Couple of interesting stories on other topics. First, along the lines of the student loan/higher education post of the other day is a story on the front page of the weekend WSJ, “A New Peril for Older Parents: Student Loans They Co-Signed.” Some real horror stories here. This is a story that will get bigger not smaller. Parents are on the hook for their kids’ student loans, often when they have not even paid off their own. As this becomes more widely known, the willingness of parents to sign will decline. What happened when the lending stopped in housing? Something to think about.
The other interesting article, somewhat more cheerful, is on page A2 of Monday’s WSJ. “Fewer Workers Limits Growth” talks about a point I have made before—how the changing demographics of the U.S. workforce may mean that the labor force growth rate is below the levels of the past couple of decades. If so, job growth can be lower and still result in lower unemployment, as there are fewer new workers to absorb.
If you think about it, at some point this has to happen as the baby boomers age out of the workforce. The debate is whether it is happening yet. Arguably, it is, but it has been postponed by the current economic and market troubles. We all know people who would like to retire but feel they can’t. If the economic situation were to improve, though, it is certainly possible that conditions would allow the unemployment rate to decline at a rate faster than currently expected.
Best wishes to everyone riding out the storm. Stay warm and dry, and may no trees fall on you or water flood your basement. So far, my major challenge here has been shooing the cat off the keyboard, and I hope that continues to be the case.