What does the GDP jump mean to the economy?

Any growth in the economy is good news. There are signs the economy is coming out of the recession and starting the slow path to repair.  The federal government said Thursday the Gross Domestic Product jumped 3 1/2 percent in the third quarter. This sounds like good news, but is that number as good as it appears?  Does a 3.5 percent increase in the GDP really mean the economy is starting to turn around? Yes, the increase stopped four straight quarters of drops and was higher than the growth prediction of 3.2 percent, but what does that really translate to?

Dr. Donald Schunk, an economist at Coastal Carolina University said, “I’m going to hate to pull people back down, but the reality is when you dig into that number, if you start at 3.5% growth, strip out the temporary car sales from the cash for clunker program, that takes you from 3.5 to 2.5 percent. You strip out this one time swing in inventories, it’s a very technical feature of the U.S. economy, but if you strip that piece out, you go from 2.5 to 1.5 percent growth. Then if you strip out the spending from the federal government during the summer, all the different stimulus plans, and some perhaps temporary strength in housing, which is being supported by the 8-thousand dollar tax credit, by the time you peel off all of those largely temporary prices, the 3.5 percent growth goes to something closer to zero.”

Schunk said the increase is still good when compared to last years numbers at this time. But is it a valid sign the economy is turning around, probably not.  He said what needs to happen is consumer confidence needs to jump and that translates to spending money.  However, with the unemployment rates continuing to climb, that’s most likely not going to happen anytime soon.
   
In a little more than three weeks, the holiday shopping season kicks in and businesses are holding their breath to see if consumers will open their wallets.  If consumers hold on to their dollars again this holiday season, even more businesses may lock their doors.