The growth is attributed to the massive government stimulus, which led to higher consumer spending. In addition, a reduction in inventories and robust government spending helped spur growth in the third quarter. But even excluding the influence of auto sales, production and inventories, the economy grew 1.9 percent last quarter.
At first glance, it appears that the idea of spending our way out of a recession is working, though I get a bit concerned when we feel all we have to rely on this plan to stimulate the economy. Yes, it has worked thus far, but will it continue to work?
Early indications are that investors are reacting positively to this news. Nevertheless, I would rather see sustained growth into the fourth quarter before declaring the massive government spending a success and the recovery in full swing.
However, there are reasons to be excited about the GDP in the fourth quarter. First, it comes after the positive third quarter GDP, which is much better than a repeat of the first quarter when the economy shrank 6.4%. Moreover, with the Holiday shopping season on the horizon, we could see consumer spending increase yet again. If this trend can continue, then we could see the GDP continue to push higher.
That said, I don't think there are any more government stimulus packages on the horizon, so there may not be as much money in some Americans' pockets. The upside of trying to spend your way out of a recession is that there isn't an unending supply of money to spend, right?
I'm going to sit back and enjoy the ride higher today, but let's not be surprised if this "recovery" hits a brick wall. Trust me, I am not rooting for this to happen, let's just not be surprised if it does.