GDP growth, Oct 2007

Good news.  The first estimate of third quarter economic growth came in better than expected, and that includes not just the overall economy, but also its net effect on a per person basis: real disposable income per person is up 3.1% over year ago.  (The population is growing, but real after-tax disposable income is growing faster.) 

The first chart shows two quarters worth of GDP growth (nominal and real).  The second shows the good news regarding growth in personal spending (or saving) power.

These encouraging results show that our economy has been generating a robust improvement in both overall prosperity and average personal prosperity.  What a contrast with the unanimous message of economic gloom I heard from the Democratic candidates in Tuesday's debate; makes me wonder what the numbers would have to be to evoke a more positive assessment from them.

In any case, these growth results mean that both debt clocks at right should soon start ticking backwards a little faster, barring an unexpected October blip in the debt level.  I'm still waiting for any debate moderator, for either side's debates, to ask the following question:

"Both debt clocks are currently ticking backwards, indicating that the burden of the federal debt is decreasing.  Do you consider that good news?" 

I have a feeling I'll be waiting a long, long time for someone to ask that question.

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End note:
If only we had a breakdown, by income quintile, of real disposable personal income per person, we could test the questionable assertion that the middle class isn't benefitting from any of this wealth creation we've been experiencing.  Unfortunately, the BEA numbers aren't broken out like that. 

Comments

[Mike H.]

That is extreamly unfortunate Steve, it would be very useful information to see income gains broken down by quintile. It angers me to no end how the pro tax hike people claim what matters is if people "feel" they are losing out, even if they are not. It angers me even more that they are right. Since even greater income redistribution appears to make the poor more wealthy in the short run, and they can't really see the benefits of growth in the long run, people will vote for it. And since people can't stand to see someone else getting richer faster than they are, they vote to stop it. Why is it that to make the tax code more fair it simply means taxing the people that make more at even higher rates? Who's paying less in response? And dropping the ATM doesn't count, people shouldn't be paying that anyway.

Anyway... the GDP number was phenomenal, and Brian Wesbury is forecasting 3.5% GDP for all next year, so there's definitely reasons to stay very optimistic.

[muirgeo]

http://www.stateofworkingamerica.org/tabfig/01/SWA06_Table1.3.jpg

[Kevin]

Hold on now. I've been repeatedly told by Europeans for some time now that the US economy was a house of cards held up by a real estate bubble, and that the only reason that Americans aren't completely wiped out is that they're refinancing mortgages and treating their houses like big brick ATM machines. How can 500 million Europeans be wrong?

[Steve]

muirgeo:
Nice table, but it would be more informative if someone would adjust it for the dollar value of fringe benefit increases, which would increase the recent numbers. It would also be informative to remove illegal immigrant families (of all nationalities), which would also increase the recent numbers.

Any idea if the EPI has attempted those adjustments?

[muirgeo]

Steve,

Benefits are being cut if anything (high deductible health insurance and retirement roll backs). As far as I know most illegal immigrants aren't filing taxes if they are their employers should be arrested and sent to jail for a long time. That would fix the illegal immigrant problem.

The fact is almost all of the productivity gains are being pocketed by the elitist on top. It's indefensible and bad for our country. I agree in general with arguments supportive of free markets but these redistributions of wealth have little to do with free markets and lots to do with power and money stealing democracy, policy, treasury and productivity to further enrich itself.

[Argus]

Muirgeo --

I don't know about retirement, but it appears to me that my employer is spending an ever-increasing amount on my health insurance. Their payments are certainly increasing faster than the rate of inflation.

I suspect that there's a basic disagreement around what the baseline is. Do we consider (a) an employee's medical costs as a deduction from his salary, or (b) the portion of costs paid by an employer as an addition to his salary?

Also, medical care is getting better every year. So, although total medical expenditures are rising, outcomes are also. Consider, for example, the effect that the Cardiac Stent has made in the treatment of heart-attacks.

[woodchuck64]

GDP numbers have some problems as described here: http://tinyurl.com/34nsb4

But even without deeper analysis, surely the Fed rate cuts should make one a little concerned about the real health of the economy. If job creation is robust and GDP growing "phenomenally" , why the heck is the Fed lowering interest rates?

The reality I see is that the economy is not doing well, credit problems are mounting and the Fed is desperate to keep the credit bubble from deflating.

[JorgXMcKie]

Muirgeo, I think you're confusing slowing the rate of the increase with an actual cut. Most of the 'cuts' in benefits that one reads about in the newspaper are not cuts. They're a slowing of the increase. That is, the cost of employer provided benefits (especially health benefits) is still rising, it's just that so is the employee contribution. The total employer provided monetary benefit (wages + benefits) to the employee is going up, not down, and it's up above inflation.

The proper way to figure compensation has to be at least (W)age + (B)enefits + (O)ther = total compensation. We should then figure the change in total compensation. After all, many people say that they don't leave their jobs because they want to keep their benefits. Therefore, the benefits must have a high utility value that must be added to the wages.

[JorgXMcKie]

And Ethyl, the Fed is supposed to 'anticipate' inflation/deflation and adjust money supply accordingly. They cut 1/4 point instead of the fairly expected 1/2 point. Evidently they see inflation as less likely than a slowing economy. Of course, a booming economy (especially with a tight labor market) leads to inflation, right? Which would you rather the Fed worry about?