GDP Up 3.5%

If you look at the most recent economic reports, Gross Domestic Product (GDP) has increased 3.5% this past quarter. This is actually very good, especially because most economists expected growth to be 3.2%, so the economy is actually doing better than expected.

Now, some of you may be saying "But wait, didn't Bernanke say we were out of a recession last quarter, and it didn't really do anything in terms of job growth." There's a couple things that need to be teased out with this. When Bernanke said that we were technically out of a recession, he looked at the fact that retail sales had increased 2.7%, showing growth in the economy. However, this number is inflated largely in part due to the Cash for Clunkers program, and really, a 2.7% growth in retail sales isn't large enough to produce jobs. This is why when this data was released, many economists were saying that we were in the middle of a jobless recovery (growth is too slow to produce jobs).

3.5% increase in GDP, however, isn't slow. This increase is a result of more consumer confidence and investment beginning to creep back up, as well as government stimulus. Plus, 3.5% is actually a little bit above what is normal in expansionary times (3% is the goal). This growth is large enough to hopefully begin to produce jobs, which would definitely be a plus.

Before we break open the bubbly and begin celebrating, it is important to keep things in perspective. Although this positive growth is good, it is true that a lot of the change is due to the cash for clunkers program and new houses being built (government programs). It's important for the long term economy that the private sector begin to pick up the slack in the next year or two. Unfortunately, many speculators claim that it is unlikely the private sector will be able to pick up the growth on its own, so we may see growth dampen again next year. Geithner has also warned that this recovery is fragile, and that there are still credit risks. However, while these risks are manageable, they could dampen the economy.

In short, GDP has increased for the first time since the crisis started, which is obviously a good thing. Now the important thing is to make sure that this growth will produce jobs and that it will continue within the private sector (ie, without the government). Still though, any good news about the economy in these tough times is definitely welcome.

For further reading:

Geithner on Credit Risks

Stimulus Impacted Expansion

Muted Forecast for 2010


-The Economist