United States GDP for the 3rd quarter grew at 3.5% according to the Bureau of Economic Analysis. The third quarter being the first to see growth since the economic decline about a year ago. Sounds great — but there’s a red herring. Cash for Clunkers provided massive unseasonal auto industry demand. Motor vehicle output grew by a seasonally adjusted 158%. This growth is clearly unprecedented and we should expect it to decline like a waterfall next quarter — growth never to be repeated again without this type of government incentive.
With Cash for Clunkers providing 1.66% GDP growth, net growth for the quarter was 1.89%. Still maintaining growth and that’s a good sign. The one problem with that. Cash for Clunkers stripped out an unknown amount of future demand for the auto industry; perhaps mostly from the fourth quarter but likely beyond that. So while the short term gains have been exceptional, the lasting effects of Cash for Clunkers may actually have a negative impact on GDP in the fourth quarter. Hold on, the ride isn’t over.
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