U.S. government porkfare is no way to end this recession

The Commerce Department is expected to validate that premise later this week when it reports that the U.S. economy expanded at a 3 percent annualized rate or thereabouts in the third quarter, according to economic forecasters. It will be the first positive reading in five quarters and a sign the slump that started in December 2007 is over.

The official arbiter of such things — the National Bureau of Economic Research's Business Cycle Dating Committee — isn't about to bless the recovery just yet. The BCDC waited until July 2003 to declare an end to the March-to-November 2001 recession.

Of the four coincident indicators the committee uses to determine the onset of expansions and contractions, two have turned up — industrial production and inflation-adjusted business sales — and two are still falling, albeit at a slower rate.

The declines in employment and real personal income less transfer payments are one reason Main Street won't be celebrating Thursday's news on gross domestic product. The unemployment rate, currently 9.8 percent, is expected to top 10 percent in the next few months and remain elevated into next year, according to both Obama administration economists and private forecasters.

After that, it will be a slow slog for the out-of-work. The number of people who have been laid off permanently accounted for 56 percent of the unemployed in September, according to David Altig, senior vice president and research director at the Federal Reserve Bank of Atlanta. The share of permanent job losers (see Table A-8 in the monthly employment report) never rose above 45 percent in the six previous recessions, Altig writes on his blog, another piece of evidence supporting the forecast of a jobless recovery.

High unemployment isn't the only reason the GDP celebration will be muted. Much of the third-quarter growth was manufactured.

This may sound whacky, but the federal government has been paying people to spend. Honest. You can't make this stuff up.

Uncle Sam handed out your hard-earned tax dollars to prod people to scrap their old cars for more fuel-efficient models. The “Cash for Clunkers” program sent auto sales on a roller coaster ride — first up, then down — in August and September. Some of those buyers would have purchased a new car or truck anyway. Others used the US$4,500 rebate as an inducement to strike while the iron was hot.

Just to recap: The government is paying people to do what they would have done at some point anyway.

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