Q3 GDP Growth: Don't Get Too Excited Because It Isn't Sustainable

This chart demonstrates why I did not get too excited about yesterday's announcement that Q3 GDP grew 3.5% and that the recession therefore ended in June. Look at the contributions to GDP growth in the chart below. The growth in consumer spending came largely from the Cash for Clunkers program in August. Another appropriate name for this program could have been: "Borrowing money that we don't have, from the Chinese, in order to subsidize purchases from poorly managed US car companies, for some Americans...all while destroying perfectly good older cars in order to satisfy the lunatic leftist environmental fringe in Congress."

The growth in housing came largely from the First Time Homebuyer's Tax Credit. Another name for this program could be the following: "Having renters and existing homeowners that live within their means subsidize the purchases of people that probably aren't ready financially to buy a home, thereby reducing the pool of homebuyers in the future."

Finally, you can see how government spending (aka "taking money from productive citizens to spend in unproductive ways) also "contributed" to growth. The only pure growth in Q3 came from inventories, which needed to be rebuilt after the tremendous production decline in the panic of late 2008.

From Don Marron: