I missed an opportunity to post this last week, but there has been a revision to the GDP number for the 2nd quarter of 2008. Originally the number was 1.9% growth, but now the number is 3.3%. Analysts expected a higher revision, but the 3.3% beat the predicted 2.7%. (The Q2 GDP has since been revised to 2.8% on 9/26/08)
So what are the reasons for the good number (3.3% is a good number)?
- Stimulus checks helped, but weren’t necessarily the engine.
- Business inventories were less than expected meaning their goods are being purchased.
- Global Trade! The weak dollar is the main reason for the upswing in the GDP. However, the US being weak causes a ripple effect in the world economy and that ripple is finally reaching some areas like China.
Summary – Although the GDP is up, the likelihood of it being a consistent trend is small. My guess is that the US has hit bottom and is starting the long cautious climb up. This will allow the US to lead the next recovery but it will be slow. Factors that are helpful now (weak dollar, low interest rates) will give way and something more transformative will need to take their place (investments in infrastructure, innovation in energy and health care, and education).