Recession? What recession? The economy seems to be trudging along at a healthy pace, judging by today's GDP report, which sent markets soaring.
Gross domestic product -- a measure of the economy's output -- grew at a 3.3% annualized rate in the second quarter. Not bad at all, considering the daily barrage of news about soaring bankruptcies, tumbling home prices, and never-ending inflation. So what gives?
Don't get me wrong -- the reading is good news. But the growth was largely driven by factors that either won't be sticking around for long, or come with equally evil side effects. The engine powering the GDP growth was a surge in exports -- a gain of 13.2% -- fueled by a weak dollar, which made our goods and services look cheap to foreign markets. That benefit gives companies like 3M
Will those gains stick around? In all likelihood, yes. The dollar has been going gangbusters lately, but I happen to think its weaker days are nowhere near over.
The second economic jolt for the quarter came from a combo of annual tax rebates and stimulus checks, which helped consumers spend their little hearts out. Consumer spending added 1.24% to the GDP's bottom line in the quarter. While that's all well and good, it proves only that when the government sends someone a check, they'll spend it. That's not exactly rocket science.
Now here come the caveats: One cruel consequence of both a weak dollar and a flood of stimulus checks is a nasty dose of inflation. Inflation is vitally important to everyday Joes and Janes because it affects their real wages -- their income minus the perils of price increases.
From this point of view, things are pretty ugly. From 2000 to 2007, real wages fell by $2,000 for the average middle-class family. In short, whatever economic growth came along during that period didn't find its way into the average citizen's pockets. Serenity now!
Further fiscal Foolishness:
- Check out how our trade deficit with China plays a part in paying your mortgage.
- A list of stocks that beat inflation and recession.
- How growing national debt can choke off the economy.
- Think the dollar is out of the woods? I don't.
