What does the GDP report really mean?

News that GDP grew by 3.5% in the third quarter is definitely welcome after four straight declines. A careful look at the major components in NYT and WSJ shows that stimulus has played a role. Consumption increased with a big help from cash for clunkers; investment grew because of an uptick in housing ($8k tax credits at work) and restoration of inventories. Net exports fell, whereas federal spending was up (no surprise there). More details are available in the Bureau of Economic Analysis press release.

There is still plenty of room for concern. Cash for clunkers boosted sales in the short term, but many economists (myself included) believe that the program merely accelerated purchases that car buyers were going to make anyway -- which is not good news for the next few quarters. The employment news continues to be bleak, as noted in a recent post. But +3.5% beats a negative number!