The BEA ascribes the upward revision to an upward revision in defense spending, personal consumption expenditures and a downward revision to the trade imbalance.
While the growth number is "good", it doesn't substantially change my first analysis. The two major contributors to that 3.1% annual rate of increase were defense spending (1.75%) and consumption of durable goods (1.78%). Outside of those two components, the rest of the economy contracted by 0.1%. Moreover, both those components provide very little momentum for future growth. The increase in defense spending due to the Iraq war will not be repeated. The increase in durables spending has historically been correlated with lower interest rates and mortgage refinancing activity and also is unlikely to be repeated. We will need a continued improvement in our trade balance (less likely with Europe in recession and the dollar strengthening), continued and increasing business investment (less likely as interest rates rise and production capacity remains well below peak levels), and rapidly increasing employment (I think we all know the prospects for that one) to see sustainable growth. Otherwise, look out below.
I might also note that while corporate profits including capital consumption and inventory revaluation rose by 10% in the third quarter, without those adjustments after-tax profits fell 4% in the quarter. I have been very suspicious of the capital consumption allowance, which doubled in the aftereffects of the stock market bubble and increased to a record amount in the second quarter. Capital consumption is not earnings, it is an accounting construct imputed into that part of GDP. In reality, it is reducing corporate wealth by lowering the value of corporate assets.
While many economists say will point out the good news that "corporate profits" were up 10%, I simply don't agree with that measurement. The real profits actually left over after expenses and taxes are taken out of revenue has not increased significantly during this whole recession and recovery. After-tax profits are still at late 2000 levels. And while profits have been flat while GDP has risen, corporate profitability has actually declined.
Inertia is one of the most powerful forces in physics. The inertia of a slow recovery is already proving a major factor in declining poll numbers for Bush. The economy in 1992 threw his father out of office. The inflation of 1980 more than the hostage situation threw Carter out in 1980. Reagan was well on his way to being a one-term president until the stock market took off in 1982. This makes a case for Democrats intentionally slowing the economy through 2004, and coincidentally rescuing their own financial affairs (at the expense of Republicans).
What can we do to slow the economy down? First, we can spend less money. One can make minor changes such as brewing their own coffee versus going to Starbucks, up to putting off every purchase unless it is absolutely necessary. This is straight out of the Warren Buffett school of business management. He buys companies that are well managed: always trying to increase income and cut expenses to boost profits. As individuals usually cannot control their incomes as much as their spending, cutting spending is something that people can do immediately to improve their financial situation.
Second, we can pay off our debts. Not only has this been the best investment over the past five years, with a guaranteed average real after tax return above 10%, this has a contractionary effect on both spending and the money supply. The Fed is frantically trying to get us to save less and borrow more by lowering interest rates and increasing the money supply. Paying off debts improves our wealth just as much as increasing the value of our assets. Let Republicans borrow and spend their way into the poorhouse. We don't have to if we don't want to.
Thirdly, we can move our retirement funds out of stocks and into safer assets, such as insured CD's and money market funds as well as short term government bonds and natural resource backed assets. Nothing would terrify the Bush administration more than if the Dow dropped another 50%. If you don't have your money in stocks, you don't lose money when stocks fall. Let the Republicans lose the money. While 401k contributions and the like are tax deferred, you still are losing money if they're not in something earning more than the rate of inflation. As mentioned above, paying off credit cards, auto and student loans, and the like have been the best investment the past five years. Common stocks have been the worst, even after this latest rally. Why put your money in something you have to hope everyone else buys to make money, when you can put it toward something you know will be there when you retire?
Slowing down the economy is something everyone can participate in, and while it will lead to more unemployment and lower incomes, those that participate will best be able to weather the storm. It will also share the sense of comeraderie. Those that are doing better can help out those who are struggling (and tell them to vote Democratic). It will also involve non-Democrats. Unrepentant Greens, such as myself, can participate just as much and keep their consciences. Even if we don't vote Democratic, we're contributing to more Democratic votes, and can keep our relations with Democrats during the election civil, knowing we're both contributing to the removal of Bush in 2004 (troll notice: I won't entertain "debate" in the comments on my political affiliation and MB will shut things down if things get out of hand, so don't even go there).
The economy is the best way to get Bush out of office. He can't fight it by invoking "homeland security", because the economic situation affects people much more deeply than any Orange Alert. He can't make people spend money if they don't want to. In fact, his party can't pass any budget legislation without becoming even more unpopular. Plus, Democrats can start spending after the election and "prove" they're better for the economy. So what are we waiting for?
The group will attempt to raise $100 billion from "investors, governments and consumers". Pardon me, but can't energy companies use their own money too?
If you register with a fake e-mail, you can get the whole gory story here.
"The lack of consistency and predictability in the resolution of these issues is at the heart of the liquidity crunch that is now paralyzing much of the sector. There is a striking uniformity of viewpoint, however, among the stakeholders [ED - aka: funders of ECRI] - irrespective of their position on regulated versus competitive markets - that, outside the realm of public power, the role of government should be limited. Rather than assuming a direct service responsibility, for example, government should assure the necessary incentives and penalties that maintain industry accountability for the obligation to serve. This would include, for example, maintaining the technical reliability of the power system, ensuring common carrier access, acting as "provider of last resort" and undertaking long term R&D."
In each case, stakeholders urged that the costs of these service responsibilities should be recovered wherever possible by the consumer, not the taxpayer.
Um...what happened to the investors? Read that statement a couple times to get the full impact of the arrogance. Talk about having your cake and eating it too! It seems that the government should let the free market function so that energy companies can make profits without having to take risks, like investing in long-term R&D, a power grid, or things that would maintain the "technical reliability of the power system". Government should also "maintain carrier access", so anyone who wants to can get in on this great racket to make risk-free profits and fleece the American consumer. In the event of a crisis, the government provides power and bails out whoever is necessary. Oh, and we'll let you fine us when we screw up, subject to an appeals process, of course. We can't pay for this ourselves, don't you know, because of our - ahem - liquidity crisis caused by certain past bad investment decisions. Stop us before we create another special purpose entity!
The sad thing is that this is the same language that was used when deregulation was green-lighted during the Clinton administration in 1996, which means that while Bush will surely grease the rails for legislation based on this energy industry blueprint, the Democrats will offer token resistance, if any.
Just remember who will be paying. If not recovered from consumers through rate hikes our shiny new grid will be funded by taxpayers - consumers in another form - while power companies espouse the "free market" yet avoid its responsibilities like the plague. The failure to take responsibility for common property and investments and their own market behavior is the reason why energy markets were regulated in the first place. If the companies involved cannot do this, the market should never have been deregulated, and the first thing we need to do to assure reliable power at the lowest price is to not only for the government assume the responsibility for service, but also the responsibility to set the price.