3Q GDP Revised Up To 8.2%

But don't go getting all giddy yet. While GDP growth was revised upwards from 7.2% to 8.2% for the 3Q we're still not out of the woods.

Politically for Bush this new number can be a blessing or a curse. If the economy can sustain this kind of GDP growth for the next couple of quarters, Bush will effectively negate the "It's the economy" argument of the Democrats and will have an even easier path to reelection.

If growth slows (and 8.2% is really an unsustainable number for any length of time given current monetary and fiscal policies of the government) then Bush may be exposed to a pretty harsh assault campaignwise on the economy. If the growth rate drops to 2.5%-3% (a more sustainable number), Bush faces the probability that the Democrats will assail him for a false recovery. They'll talk about how the declining rate of growth is pointing to the fact that we have not recovered from the recession, and they'll blame the tax refund checks for providing the one quarter boost.

They would be wrong, growth is growth, whether it be at 8% or 3%. A recession is not characterized at all by growth.

They would however be right in asserting that we still have not seen a complete recovery from the recession. Right now, companies are boosting productivity by increasing overtime for existing workers. I recently read somewhere (no link right now, I'll try to find it tonight) that overtime is at its highest level in years. For a complete recovery, companies need to start hiring more people, instead of laying off and increasing overtime. Yes, layoffs and overtime provide a short term productivity and profit boost, but ultimately they will harm the business more than they do it good (higher absenteeism and higher turnover). It is also concerning that business inventories are not reducing as fast as they were originally stated to have. Excess inventory will hold back the growth of the company by tying up assets that could be put to more efficient use elsewhere.

Don't get me wrong. Things are looking much better than they were even back in June. I think that for now the threat of a deflationary recession has passed us by. But, as with everything in life, the truth lies somewhere between the two extremes. 8.2% is a great number, but it is not proof that we have entered a new economic age. At the same time, just because the jobs are not being created as we would normally expect to see at this stage of a recovery does not mean that the end of the world is here either.