Tags: Rosenberg | GDP | govt | spending

Gluskin Sheff’s Rosenberg: Govt Spending Bolstering Growth Rates

Monday, 29 Oct 2012 08:36 AM

The U.S. gross domestic product (GDP) grew 2 percent in the third quarter, according to advance estimates released by the Bureau of Economic Analysis, up from 1.3 percent in the previous quarter, though government spending accounted for much of the gain, said David Rosenberg, chief economist at Gluskin Sheff.

Strip out government spending and the rate would have likely held steady at 1.3 percent, which by historical standards, should have been much higher.

“When you take a look at total private-sector activity, it’s running at 1.3-1.4 percent. That didn’t really change, and the other thing that I look at is where we should be at this stage of the cycle,” Rosenberg told Yahoo.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

“This is the weakest 13th quarter of an expansion that we have seen in modern economic history, since the end of World War II,” he noted.

And things might get worse.

At the end of this year, tax breaks are set to expire right at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the country sliding into a recession next year if left unchecked by Congress.

A deal could still involve some adjustments to taxes and public spending, and considering that the public sector drives a third of GDP, the economy will run into some bumps next year even if disaster is avoided.

“GDP is all about spending,” Rosenberg explained, adding that incomes also remain weak. “We measure our economic success in spending terms, when it’s really income.

“Real personal disposable income, which is over 80 percent of the economy on the income side of the national accounts, that slowed to a 0.8 percent annual rate,” Rosenberg said.

Spending eventually will follow income, which means the economy could slow its already tepid recovery.

Meanwhile, other studies show that fears surrounding the fiscal cliff alone could shave off growth rates moving forwards.

Many businesses are putting off plans to expand and hire because they don’t know what they will be paying in taxes next year.

Even if Congress strikes a deal after the elections or even early next year, fear alone might weigh down on growth rates.

A recent National Association of Manufacturers (NAM) report reveals that those fears are already pushing businesses to the sidelines and will shave 0.6 percent off the country’s GDP by the end of 2012.

“The fiscal cliff has forced manufacturers to plan for a future in which business is down and their tax bills are up,” NAM CEO Jay Timmons said in a statement.

“Manufacturers have had to put off plans to expand and hire new workers to protect themselves against an increasingly negative business climate — resulting in slowing economic growth and job loss in the manufacturing community.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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The U.S. gross domestic product (GDP) grew 2 percent in the third quarter, according to advance estimates, up from 1.3 percent in the previous quarter, though government spending accounted for much of the gain, said David Rosenberg, chief economist at Gluskin Sheff.
Rosenberg,GDP,govt,spending
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2012-36-29
Monday, 29 Oct 2012 08:36 AM
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