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Friday, October 30, 2009

National Accounts Show Stimulus Did Not Fuel GDP Growth

Along with the news that real GDP growth improved from -0.7 percent in the second quarter to 3.5 percent in the third quarter, the Bureau of Economic Analysis (BEA) released detailed National Income and Product Account tables yesterday, which received little comment in the press today. These tables make it very clear that the $787 billion stimulus package had virtually nothing to do with the improvement. Of the 4.2 percent improvement, more than half (2.36 percentage points) was due to firms cutting inventories at a less rapid pace, which has nothing to do with the stimulus. (For the details look at BEA’s Table 2 which shows that the contribution of inventory investment increased from -1.42 to .94 which equals 2.36.)

What about the other components of GDP? In particular what about government spending, which was supposed to be a big part of this stimulus? Government spending was a negative factor, subtracting 0.9 percentage points from the change in GDP growth.

Automobiles and parts contributed 1.15 percent for the quarterly improvement, but as today’s release of monthly data shows that was an unsustainable temporary blip: up in August and down in September due to cash for clunckers. Here is how BEA put it today: “Purchases of motor vehicles and parts accounted for most of the decrease [in real consumption] in September and for most of the increase in August, reflecting the impact of the federal CARS program (popularly called “cash for clunkers”). The program, which provided a credit for customers who purchased a qualifying new, more fuel efficient auto or light truck, ended on August 24, 2009.” And the latest consumption and income data in today's release reveal no noticeable impact of the temporary tax rebates and one time payments on consumption as John Cogan, Volker Wieland and I had earlier shown.