3Q GDP Advance

The Market Ticker

Well here’s the “big number” for the week….

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.0 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.7 percent.

Of course this will be revised down.  It nearly-always is.  But the inside look is troublesome…..

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.8 percent in the third quarter, compared with an increase of 0.1 percent in the second. Excluding food and energy prices, the price index for gross domestic purchases increased 0.6 percent in the third quarter, compared with an increase of 0.8 percent in the second.

That’s a 3.2% inflation rate including food and energy, and 2.4% excluding.  That is well-above The Fed’s claimed target inflation rate, and produces an instant problem for Bernanke – the “just a little inflation” monster may come out and step on some churches.  Ex-rounding (the BEA doesn’t bring out enough decimals) they claim the deflator is 2.2%, which again is above Bernanke’s target.

QE2?  Into this?  Someone better tell him to look at some commodity charts first, because major increases in the deflator are baked in the cake at this point due to cost-push pressures.  The “QE Train” will add more fuel to that fire, and runs the risk of setting off a 1970s-style cost-push problem – but without the wage coupling.

If this happens, I hope you’re prepared for a MAJOR hit to your standard of living, because you’re definitely going to get one.

Real personal consumption expenditures increased 2.6 percent in the third quarter, compared with an increase of 2.2 percent in the second. Durable goods increased 6.1 percent, compared with an increase of 6.8 percent. Nondurable goods increased 1.3 percent, compared with an increase of 1.9 percent. Services increased 2.5 percent, compared with an increase of 1.6 percent.

Where did it come from?  Let’s have a look….

Disposable personal income increased $43.4 billion (1.5 percent) in the third quarter, compared with an increase of $120.9 billion (4.4 percent) in the second. Real disposable personal income increased 0.5 percent, compared with an increase of 4.4 percent.

Aw crap. We’re back to believing in skittle-crapping Unicorns.  Oh wait – we never stopped believing in that, did we?  Not really.  This is a major problem.  Spending increased 2.6% but income increased 0.5%, both in “real” (inflation-adjusted) terms. The “free lunch” believers are back.  Remember, it’s disposable personal income that counts – mandatory spending including taxes, and they’re up materially this quarter (last quarter they were not.)

Guess where the skittles came from?

Real federal government consumption expenditures and gross investment increased 8.8 percent in the third quarter, compared with an increase of 9.1 percent in the second. National defense increased 8.5 percent, compared with an increase of 7.4 percent. Nondefense increased 9.6 percent, compared with an increase of 12.8 percent. Real state and local government consumption expenditures and gross investment decreased 0.2 percent, in contrast to an increase of 0.6 percent.

Jesus.

Here’s the table that you better pay attention to, because it is continuing to ramp on an utterly-unsustainable basis.

This table scares me.  Look at the ~35% increase in transfer receipts since 2007.  That’s bad.  What’s worse is that it comes with a roughly 22% drop in tax receipts.  When you take these two together you find basically the entire ramp job in the federal deficit – that’s $920 billion, between the two, in delta to the Federal Government between 2007 levels and today.

Sustainable?  Improvement in the private economy?

Like hell.  We’re still playing the “hide the truth” game, and at this rate we’re going to double the size of government again in another seven or so years. The problem is that we can’t pay for it when the real private economy is doubling on a 30 year basis, not a seven year one.

“Sucks” doesn’t even begin to describe this.  Terminally stupid is more like it, which is exactly what I was talking about last night on MSNBC.

PS: Mentions of these facts in the “mainstream media” in the hour and a half since the report was released? ZERO.