Better Data Means Little for Main Street

Economy in U.S. Probably Grew at Faster Pace on Consumer Spending Pickup

The economy in the U.S. probably grew at a faster pace in the third quarter, reflecting a pickup in consumer spending that bodes well for the recovery’s staying power, economists projected a report this week will show.

Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before an Oct. 29 Commerce Department report. Other data may show business investment remains a mainstay of the economic rebound, while housing is mired in a slump.

The pace of growth would still not be strong enough to give the 14.8 million unemployed Americans hope of finding work soon, one reason why Federal Reserve policy makers may be about to pump more money into the economy. Wal-Mart Stores Inc. and Target Corp. are among retailers likely to gain as discounts lure budget-conscious shoppers during the year-end holidays.

“There’s no question about the sustainability of the recovery now,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “But unless we grow faster, we don’t have a shot at bringing down unemployment significantly. Improvement in consumer spending is a sign the holiday season will be better than in the past couple of years.”

1)  2% growth up from 1.7% is not enough, not even close, to work down unemployment for 14.8 million people.  GDP has to move sustainably higher than those levels, and where is that supposed to come from?

2)  Real estate still mired in a slump, and given all the foreclosure data, we should expect real estate to be a net negative for months to come!

3)  Gains at Walmart and Target from budget conscious shoppers is not a signal of robust consumer spending, but the consumer still faces severe issues and focused on discount shopping.

Scant improvements in consumer spending or 2% GDP isn't going to move Main Street and this is why Bernanke is going to drop QE2.  As long as real estate and unemployment show no improvement that's sustainable, we are just spinning our wheels.  GDP has to be signficantly higher and for a prolonged period to change the Main Street economy.  The question is:  Will QE2 get that job done?

Hope all is well.

J.D. Rosendahl, Rosey