The third quarter GDP report, a key measure of the nation’s economic output, turned positive for the first time in four quarters, and is a telling sign the worst recession since the 1930s could be coming to an end.
The recession, which officially began in Dec. 2007, has caused the unemployment rate to rise to nearly 10 percent, the highest in over 25 years.
The positive GDP report is certainly promising for an economic recovery, however, it could be misleading.
In the third quarter a significant portion of President Obama’s stimulus plan passed back in February was put into effect. This was combined with the “Cash for Clunkers” program in which the government provided rebates to turn in old clunker vehicles.
These two stimulus factors heavily propped up GDP in the third quarter, crutches that won’t be as strong in future quarters.
The government effectively push started the economic car, but that is all it can do. The car must start to drive under its own power and not stall out again.
A large worry is the petrified American consumer.
The Consumer Confidence Report is a reading that measures consumers’ forward confidence about the economy, job prospects, and spending patterns. Low consumer confidence leads to less spending by the consumer and continuing economic worries, as consumer spending accounts for nearly two-thirds of GDP.
Currently the confidence reading for October is 47.7, down from more than 50 in September, and more than 100 from before the recession began, a clear sign consumers are still worried.
A positive GDP showing is the first step to economic recovery, but for the recovery to last, economic engines, like the consumer, need to start firing as the economy cannot be supported by the government for an extended period of time. It is a step closer, but it is too premature to give the all clear.