GDP in 3rd quarter rises to 3.5%

Is this good news or just a prelude to a double dip recession? Ed at Hot Air makes a good point:

Sales of new homes fell last month, and inventories are not growing. With the government tax credit expiring, those new-home sales and construction will likely fall off. The third-quarter growth in that area will almost certainly represent sales shifted from future quarters, which means that the next quarter will get negatively impacted from this growth.

One key indicator continued to move downward significantly, although Reuters only reports it in the final paragraph:

Business investment fell at 2.5 percent pace, with investment nonresidential structures dropping 9 percent, a reflection of ongoing problems in the commercial property market.

In other words, what we had in the third quarter was not long-term growth based on solid investment in business. We had a flurry of federal spending and consumer behavior predicated on highly temporary government interventions, like Cash for Clunkers and the homebuyer tax credit. That may be enough to make the administration look good for the next three months, but only for that long if they don’t stimulate real investment instead of using these gimmicky programs. If we have a double dip recession after these gimmicks end, Barack Obama won’t have George Bush to kick around any longer on the economy. He’ll own it after this.

Double Dip Recession?

Are we in for a double dip recession?

On Friday, national unemployment was reported at 9.8 percent with a loss of more than 260,000 jobs, leaving a staggering 15.1 million Americans out of work — a downside surprise to analysts who were expecting a better result for September.

The Dow Jones, which had been on a streak so hot since March that some had begun saying it reflected a new bull market, sagged hundreds of points lower on the week.

And car sales, which had surged during the government’s Cash for Clunkers program in August, hit the brakes in September as the annualized selling dropped from 14.1 million to just 9.22 million in September.

All that’s enough to convince some observers that the economic recovery is faltering and could be heading for a “double dip” recession. And that would mean the recent green shoots of recovery turn out to be just a pause in a much longer economic slide.

Some leading corporate executives worry there’s no economic engine available to drive growth in 2010: Technology, construction, finance — all sectors that have powered the U.S. economy out of the doldrums in the past — are flat this year.

And some boardroom denizens offer a bleak assessment: An economy that was driven by consumer overspending for years and by government overspending for the past year will have a tough time making any headway when the government support is withdrawn.

The risk of a double-dip recession is rising

Economist Nouriel Roubini says the US economy is at risk of a double-dip recession. It's looking like jobs won't be back until 2011. That is just slap-you-on-the-back-fantastically great news!

There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.