Why the GDP Reading Should Be Ignored
If you believe the recent gross domestic product (GDP) reading, you would think the country is doing well, on its way to better times ahead—but hold on.
The third estimate of U.S. GDP growth showed a stellar 3.1% annualized rate, according to the Department of Commerce, well above the 2.7% Briefing.com estimate. But before you get too excited, know that the reading was aided by government spending, which increased 3.9% in the third quarter and contributed 75 basis points to the GDP reading. (Source: “Exports, government spending buoy third-quarter growth,” Reuters, December 20, 2012.)
While the government-aided GDP is positive, my concern is that the fiscal spending will likely begin to slow, given the pending “fiscal cliff” on January 1. And yes, it will happen; albeit, I’m not sure what the actual impact will be as the two parties continue to debate the mechanics.
One thing is for sure: America doesn’t have a lot of capital to freely spend. But then it has always been able to go to the printing presses to issue more money into the system and add to the out-of-control national debt.