70% Of The Q3 GDP Growth Was Cash For Clunkers

[AllentownJake]

Today's downward revision is far worse than it first appears. While third quarter GDP was revised down by a 0.6% (2.2% vs. 2.8% previously), the contribution from motor vehicle
output (which was massively stimulated by Cash for Clunkers in a one-off fashion) remains enormous.

BEA GDP Release: Motor vehicle output added 1.45 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.

What this means is that Cash for Clunkers was an even larger factor than previously understood. As it stands, by a basic calculation without motor vehicle output, third quarter GDP would have been only 0.75%. That's barely growing.

Now obviously there might have been some degree of GDP contribution from motor vehicle output even if Cash for Clunkers hadn't happened. Yet it would have been far less than 1.45%, look at Q2's contribution noted above, it was only 0.2%.

Also, the contribution could have actually been negative (subtracting from GDP growth) if motor vehicle output had contracted without stimulus. (Which isn't a wild scenario given the state of things for U.S. autos). And actually, in Q3 of 2008, the same year-ago period, motor vehicle output subtracted 0.15% from GDP growth according to the BEA. This means we could even be underestimating the boost from Cash for Clunkers here.

http://www.businessinsider.com/70-of-the-gdp-growth-was-cash-for-clunkers-2009-12

Wow I said this when the data came out and I was getting my ass kicked by angry people. Reality has a liberal bias.

[Skidmore]

1. Well, shucky darn, I thought the successs of whole economy was predicated on

the success of securing the auto industry, and that we all needed to keep them in bidness so that other indusries could succeed. Darn, I must have missed something because I sure understood that getting those dollars moving to purchase in this manner was important.

[AllentownJake]

2. Pushing demand forward

If auto sales are 70% of GDP in the fourth quarter, well call me confused, and excited.

[Skidmore]

4. So now that so many people have cars, what will spur the

next quarter's growth? That money only goes so far and people are tapped out.

[AllentownJake]

5. Well I guess we can all get jobs in the service sector

:rofl:

[Selatius]

7. Easy-to-obtain credit. In other words, more borrowing.

I mean, it's been the trend for the last 20+ years, and interest rates right now are incredibly low. Wages have grown at a very slow pace compared to pre-1980 levels, so people have foolishly substituted lost wages with credit.

[Romulox]

3. Most of the C4C monies went to foreign corporations.

:hi:

[MercutioATC]

10. A little less than half, actually...but point taken.

[Zynx]

12. Incidentally, that comes out of GDP calculations due to the imports increasing.

So, actually, the amount of GDP that cash for clunkers contributed to is smaller than stated.

[AllentownJake]

14. What if the car was assembled in Alabama

Most imported vehicles are in some way, "built" in the United States.

[Romulox]

22. Wrong. "Assembled" at best. Of course there was ZERO requirement

that the vehicles purchased under C4C be even assembled here. :hi:

[jpljr77]

18. ...that create jobs here in America, fwiw. n/t

[Romulox]

21. Nope. There was absolutely no requirement that any portion of the car be produced in the US

to qualify for C4C. You're simply mistaken. :hi:

[Tim01]

6. Cash 4 clunkers hurts poor people.

Besides encouraging some people to pick up more debt with a new car loan, it has also taken affordable used cars out of the market. So used car prices will also go up since availability will go down. And more people will go into debt buying a new car when they see the higher prices of used cars.
My friend runs owns a junkyard. availability of used parts is going down, so his prices are going up. Poor people are mostly the people who go to a junk yard to get affordable parts.
Forcing the poor into expensive cars. Along with forcing them into buying health insurance. I see a pattern.

[Zynx]

8. When we grow 3-4% in Q4, what will your excuse be?

Also, of course the economy is not growing in the absence of stimulus. That's what every advocate of the stimulus said would be the case. We are not at a self-sustaining recovery yet. That's no mystery.

By the way, there is evidence that motor vehicle output would have started to increase somewhat in absence of cash for clunkers. Car sales were starting to trend up anyway.

[Toots]

9. Car sales were starting to trend up anyway.

That just is not true. GM, and Chrysler were nearing bankruptcy and Ford had it's worst quarter ever. Without the Federal government giving auto makers billions and then bringing about the cash for clunkers program we would not have either GM nor Chrysler any longer and Ford would still be suffering greatly..

[Zynx]

11. They were trending up from the beginning of the year.

http://anasdaq.econoday.com/showimage.asp?imageid=18318

Sales rose from a 6 million rate to a 7 million rate prior to the program. We can also see that sales returned to levels well above the late winter-early spring lows once the program was over. The bulk of the increase was due to cash for clunkers, but to say that the entirety of the increase was is just bad analysis.

[Motown_Johnny]

13. OR, this means that cash for clunkers was even more beneficial than we thought

[AllentownJake]

15. Yes because all the other GDP numbers are sinking like a rock

3.5-2.8-2.2. Actually number might come in under 2 the way this number is trending down every month.

[Statistical]

16. If the economy was growing 3% WITHOUT STIMULUS why would we have stimulus?

That is kinda the POINT of stimulus and seems like it worked (better than I expected).

If stimulus spending DIDN'T artificially increase GDP why would anyone ever use it?

I guess I am confused maybe you would be happier if we had no stimulating stimulus action.

[AllentownJake]

17. It's not growing at 3%

2.2 which is closer to 2%

[Statistical]

20. I think you are missing the point. Normal growth is around 3%.

IF (notice the word IF) the economy was growing at 3% we WOULDN'T need stimulus.

The fact that C4C contributed substantially to GDP is a sign that it was needed and it worked.

Would you rather C4C not contribute to GDP? Meaning it was both useless, and a waste of money?

[DavidDvorkin]

19. In LBJ's day

That sort of program was called "priming the pump". That's the phrase Johnson used. Liberals applauded, while conservatives sneered and snarled. It worked, even with the drag of Vietnam on the economy.

Nowadays, it's called a stimulus plan, and DUers and conservatives sneer and snarl.

[Political Heretic]

23. I told you so.

Sigh....

[AllentownJake]

24. So did I but the knights that say nee always run into yell

:rofl: