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.

Sen. Sherrod Brown (D-OH) held a Senate Banking Committee hearing Friday, “Restoring Credit to Manufacturers.” Among the witnesses was David Andrea, Vice President of Industry Analysis and Economics,
Motor and Equipment Manufacturers Association — the auto parts suppliers’ trade association. There’s not enough attention paid to the impact of the troubles of the major domestic automakers on their suppliers, and we commend Andrea’s testimony as a sobering update:

Our research indicates that there have been 47 identified major suppliers that have filed for Chapter 11 protection this year. We have no definitive number of suppliers who have closed facilities, but Plante and Moran estimates that up to 200 suppliers have liquidated.

The result of this painful cost cutting and restructuring is a much lower breakeven point for the supply base. In the September survey of OESA members (See Attachment 4), the median breakeven unit level for 2010 is 9.5 million units. The respondents, in turn, estimate 2010 North American production volume will be 10.1 million units. This means that even with a modest increase in production, suppliers, on average, should be above their breakeven point next year. However, currently there is significant pressure on the entire system to access adequate working capital to bring the manufacturing system back up.

He also has policy recommendations.

Also testifying was Robert C. Kiener, Director of Member Outreach, Precision Machined Products Association. Excerpt:

A survey of metalworking companies shows 72 percent anticipate challenges accessing adequate lines of credit when volume grows. We are already seeing companies that are trying to expand their operations due to consolidation in the industry who are not able to access capital to fill job orders, purchase steel, and hire workers. (continue reading…)

From The Globe and Mail, Toronto, “Auto sector leads pack as U.S. factories show signs of life“:

The U.S. economy has found an unexpected bright spot: manufacturing.

Aided by a rebound in European and Asian economies, a depreciating U.S. dollar that makes exports more attractive and record low inventories, the country’s factory sector is slowly returning to life, and has become an unlikely, if unreliable, standard bearer for the nascent U.S. recovery – even in the long-blighted Northeast.

Autos are leading the way, with the cash-for-clunkers program sending consumers into showrooms, depleting inventories and prompting renewed activity at plants across the country.

Yes, but even supporters of the soon-to-be-discontinued cash for clunkers program acknowledge that it probably shifted demand forward rather than stimulate new demand.

More…

• Bloomberg, “Philadelphia Area Manufacturing Unexpectedly Expands“
• Reuters, “U.S. regional manufacturing rebounds, claims rise“

President Obama is headed to Guadalajara, Mexico, this weekend to meet with Mexican President Felipe Calderon, and Canadian Prime Minister Stephen Harper. The White House held a briefing that included Michael Froman, international economic affairs advisor. The briefing included this exchange on the Mexican truck issue:

Q … If you could tell us what the status is about the retaliatory tariffs from Mexico having to do with the trucking dispute.

MR. FROMAN: There are retaliatory tariffs in place, as you know. This is an area that we’re quite focused on. We’re working with Congress to address safety concerns that they have about the U.S.-Mexican trucking program, and we’ll do so in a way that’s consistent with our international obligations.

Q When he was a senator, President Obama voted against the pilot program. Is that the position of the administration?

MR. FROMAN: I think the position of the administration is we’d like to work with Congress to address their safety concerns and do so in a way that’s consistent with our international obligations.

Q Meaning, to resume the pilot program?

MR. FROMAN: To see whether we can find a way of addressing their concerns and meeting our international obligations.

So work already! The executive branch agencies have finished their assignments, so now it’s really a matter of the Administration going to Congress. In the meantime…

Makers of paper, batteries, toothpaste and grapes are paying tariffs on $2.4 billion of exports to Mexico after that country retaliated for a U.S. ban on Mexican trucks. Transportation Secretary Ray LaHood’s comment on Aug. 4 that he’s too busy with the “cash for clunkers” auto-discount program to focus on the truck dispute has fueled some discontent among exporters.

“On the U.S. side, there is a lack of political desire to solve this,” said Ken Barbic, director of federal affairs at Western Growers of Irvine, California, which represents grape, lettuce, date and pear growers hurt by the tariffs.

California’s agriculture industry has been hit especially hard, but the Bloomberg story notes the manufacturers who have also been affected, prominently Appleton Papers of Appleton, Wisc.

The Cash for Clunkers program, extended last night by the Senate, is widely unpopular in conservative and free-market circles. Economics commentator Larry Kudlow, usually found in those very same circles, explains in National Review Online why it’s a successful example of government stimulus.

There’s the consumer confidence, consumer enthusiasm angle:

In virtually no time, the clunker program has become a national pastime. It has captured the public’s imagination in a way that no other federal stimulus has. Everyone is talking about it. And I truly believe that consumer spirits have been buoyed by the prospect of going out and buying a new car — even with federal assistance, and even under the duress of federal mileage standards.

And the stimulus angle:

Now, I wouldn’t want the government to pass out free money for everything. But in this particular case, the cash-for-clunkers rebate program is working. It’s working so well that it’s running way ahead of the computers that are administering it at the Transportation Department and Citibank.

Well, sure. That’s government for you. But unlike most of the rest of the fiscal-stimulus plan, this program actually works because the federal cash rebate actually contributes to a consumer purchase. It’s not just another welfare-type transfer program.

The Senate last night passed H.R. 3435, making supplemental appropriations for fiscal year 2009 for the Consumer Assistance to Recycle and Save Program. The vote was 60-37.

And the dealers say, can we now pleased be paid? From The Dallas Morning News, “Dealers want government to accelerate their ‘cash for clunkers’ rebate checks“

From The Detroit Free Press: “WASHINGTON — The U.S. House approved an emergency $2-billion infusion for the cash-for-clunkers program this afternoon, with a plethora of lawmakers from around the country calling it a runaway success that should not be ended.”

The National Association of Auto Dealers is very supportive of the concept, but worries that a rushed or unclear process could leave dealers not reimbursed:

NADA Chairman John McEleney, an Iowa dealer, said the organization had been assured by the Obama administration that all transactions consummated through today will be honored.

“Nonetheless, until further definitive guidance on the availability of funding is provided by the administration, dealers who accept additional ‘clunkers’ deals may face a risk that they will not be reimbursed,” McEleney said.

At National Review Online, Henry Payne points to provisions of the law that merit some tough questions. From “Crush for Clunkers“:

[A] little noticed provision of the program requires that the trade-in vehicles be “scrapped, crushed or shredded.” The 136-page rulebook [PDF] by which NHTSA administers the Clunkers program is a revealing window into the planet-first ideologues that are now running our country….

[Demands] that the guzzlers be permanently shredded means that already hurting used-car and -parts businesses will suffer. By insisting that the cars not only be crushed — but also that their engines be disabled — Congress’s decree will penalize the industry at time when a dozen U.S. parts suppliers have filed for bankruptcy this year.

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USA Today reports “House Democrats and the Obama administration have agreed on a compromise for a so-called cash-for-clunkers bill…Similar to European programs, the legislation — also called “fleet modernization” or “scrappage” — would provide federal vouchers of up to $4,500 for people to trade in their vehicles for new ones that get better mileage.”

There’s much to like in incentives to encourage vehicle purchases, especially the retiring of more-polluting cars and an immediate boost to the auto industry.

But Congress would do well to learn from experience, i.e., the DTV transition experience.

The Washington Post today reports on the continued problems afflicting the federally mandated transition from analog to digital TV, a switch originally set for February, now scheduled for June. “Digital TV Transition, Set for June, May Get Early Test” reports that the backlog of $40 coupons to buy digital converter boxes has been cleared up, thanks to $650 million for DTV transition included in the stimulus bill.

Yes, $650 million.

Critics of the digital TV postponement …[say] the delay was unnecessary, expensive — and possibly even a threat to public safety because emergency responders have been waiting to use a part of the wireless spectrum that broadcasters will soon vacate.

The more widespread complaint, however, has been the amount of money allocated to bolster the transition program.

“This is a $650 million mistake,” said Rep. Joe L. Barton (R-Tex.), who was an opponent of postponing the digital TV transition. If the transition program uses all of that money, “they’ve managed to spend $1,000 per household for a device that costs $50.”

Apply Rep. Barton’s calculations to vehicle vouchers, then auto coupons for $4,500 could wind up costing the taxpayers $90,000 each.

More from today’s news.

• Wall Street Journal, Cash-for-Clunkers Would Rev Trucks
• The Witchita Eagle,‘Cash for clunkers’ is no joke
• WKZO News, ‘Cash for Clunkers’ Now Hinges Mostly on MPG, Not Auto Age

And Der Spiegel, “Car-Scrapping Plans — Germany’s Lessons“: “German Chancellor Angela Merkel’s cash-for-clunkers scheme has boosted auto sales, saved factory jobs, and rid the roads of gas guzzlers. But the costs are high.”