GDP Upturn is Encouraging for Manufacturers, But It’s Early

By October 29, 2009Economy, Trade

The Department of Commerce today released the third quarter Gross Domestic Product figures, reporting that the GPD rose 3.5 percent in the quarter. (News release, Sec. Locke statement.) While this upturn is encouraging, it was due mainly to temporary factors and is just another signal of the beginning of a long, slow crawl by manufacturers to get back on their feet.

Motor vehicle output increased at an annual rate of 158 percent and accounted for nearly half of the upturn in GDP. This was due to the Cash for Clunkers program which provided a temporary spark to the economy. Therefore, we can expect a payback in future quarters due to this third-quarter surge in auto purchases. At the same time, the tax credit for first time homebuyers provided a boost to the 23 percent increase in residential investment last quarter.

The 14.7 percent rise in exports in the third quarter report was the most encouraging sign for manufacturers. While this increase was likely elevated by increased demand in trade for motor vehicles, the improved economic conditions abroad combined with the declining dollar indicates that exports will be a durable component of an economic recovery in coming months.

The improved export climate signals that when the economy gets fully back on track in the latter half of next year, the recovery is likely to be stronger than the recovery following the 2001 recession, when exports were anemic due to an overvalued dollar and weak growth abroad.

While this is a positive development, it is also important to note that we are still in the very early stages of recovery.


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