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Portfolio > Alternative Investments > Real Estate

GDP Jumps Estimated 3.5%

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This news originally appeared on WealthManagerWeb on 10/29/09

Estimated real GDP jumped 3.5% for the third quarter, according to an “advance estimate” from the Commerce Department’s Bureau of Economic Analysis (BEA). Real GDP is “ the output of goods and services produced by labor and property located in the United States.” That’s a stark contrast to the second quarter’s decrease in real GDP, which was down 0.7%.

Since this estimate is based on “incomplete” data, these numbers may be revised by the time the BEA releases a “second estimate” on Nov. 24. BEA noted that the jump is due in part to the popular “Cash for Clunkers” program, which encouraged drivers of older, gas-guzzling cars to trade in their “clunkers” for new, better-mileage cars by providing cash incentives to do so. Those were matched by or paired with carmaker incentives to buyers and contributed “1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.”

The real GDP estimate reflects “positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government, spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased,” BEA said in its announcement. “Real personal consumption expenditures increased 3.4 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second. Durable goods increased 22.3 percent, in contrast to a decrease of 5.6 percent.”

High Frequency Economics Chief U.S. Economist, Ian Shepherdson, noted a “huge” jump in “residential construction…up 23%” and attributed that to the federal government’s tax credit for first-time home buyers, which gave the real GDP estimate a boost.

But that first-time home buyers’ tax credit is under a cloud of controversy. An editorial in The Wall Street Journal, “First Time Fraudsters” called it a “ scam,” and said that, in testimony before Congress (on Oct.22), the Treasury Inspector General for Tax Administration, J. Russell George, noted that thousands of people claiming the credit either had not purchased a home, or were not first-time home buyers.

Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.


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