Third Quarter GDP Surprises To The Upside

Written By Brian Hicks

Posted October 29, 2009





According to the Bureau of Economic Analysis (BEA), the U.S. economy expanded at a 3.5% pace during the third quarter, delivering some faint hope to the idea the recession may be ending.

However, within the report we also learned that without the cash for clunkers program and the homebuyer tax credit, real GDP growth for the quarter likely would have been something closer to 1.9%.

That’s less than the estimated 2% growth rate that is necessary to otherwise be left standing still.

Even still, it’s hard to argue with the fact that +3.5% is much better than -6.4%.


Also from the BEA release:

• Real gross domestic purchases – those made by U.S. residents of goods and services produced anywhere – increased 4 percent in the third quarter, compared with a 2.3 percent decrease in the second quarter.

• Current-dollar personal income decreased $15.5 billion, or 0.5 percent, in the third quarter, compared with an increase of $19.1 billion, or 0.6 percent, in the second quarter.

• Personal current taxes increased $4.8 billion in the third quarter, compared with a decrease of $119.1 billion in the second quarter.

• Disposable personal income decreased $20.4 billion, or 0.7 percent, in the third quarter, compared with an increase of $138.2 billion, or 5.2 percent, in the second quarter.

• Personal outlays increased $148.2 billion, or 5.8 percent, in the third quarter, compared with an increase of $8.2 billion, or 0.3 percent, in the second quarter.

• Personal saving – disposable personal income less personal outlays – was $364.6 billion in the third quarter, compared with $533.1 billion in the second.

• Current-dollar GDP – the market value of the nation’s output of goods and services – increased 4.3 percent, or $150.3 billion, in the third quarter to $14.3 trillion. In the second quarter, current-dollar GDP decreased 0.8 percent, or $26.8 billion.

You do have to wonder though how the economy will respond once all of these government programs come to an end.

After all, beneath today’s numbers, the underlying problems still remain.

As for the much hyped Cash for Clunkers program, here’s a post mortem on that fiasco.

From CNNMoney by Peter Valdes-Dapena entitled: Clunkers: Taxpayers paid $24,000 per car

A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales. (emphasis mine)

In order to determine whether these sales would have happened anyway, analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program.

Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.’s estimate of the ultimate sales increase generally matches what industry experts had thought, said George Pipas, a sales analyst with Ford Motor Co.”

By the way, according to the forecasts, the economy will likely grow at a 2.4 percent annual rate from October through December. GDP will also grow 2.4 percent next year and 2.8 percent in 2011, the surveys have showed, compared with an average of 3.4 percent growth over the past six decades.

The difference is significant.

Related Articles:

The Madness of Extending the Home Buyer Tax Credit

The Cash-for-Clunkers Hangover

“Shadow Inventory” Looms Large in Housing

Home Buyer Tax Credit Gives Way to Fraud

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