Back to the real world, Part 3

Well, according to the money boys, the economists, the US economy is growing again.

The long-awaited ray of good news came from the Commerce Department, which announced Thursday that the U.S. economy grew a modest 3.5 percent in the third quarter of this year - the fastest pace in two years

and one above most projections.

Ain't that nice. Or it will be. Maybe. At some point in the future. Possibly.

"We're no longer simply on the roller coaster to hell," says Donald Luskin, the chief investment officer for Trend Macrolytics LLC, an economics consulting firm. "But the idea of returning back to normal growth levels? That will be well into next year."

Unemployment is expected to continue growing over the next several months, peaking at over 10 percent. Consumer confidence is still dropping, and new home sales fell unexpectedly last month.

Confidence is not the only thing of consumers that is dropping, spending is as well. According to the Commerce Department, it dropped 0.5% in September, the first drop in five months and the biggest decline in nine. In fact, these is real reason to believe that it was only the Cash for Clunkers program that had been propping up spending - and when it ended, so did a lot of the spending.

Meanwhile, incomes were flat, falling 0.2% in September after gaining 0.2% in August, with the weakness of the labor market giving companies a means to hold down or reject wage or benefit increases. As a direct result,

[t]he Labor Department said Friday that the cost of wages, health care and other benefits increased by 1.5 percent in the year ending in September, the smallest increase since such records began in June 1982.

That's down from a 2.9 percent rise in the 12 months ending in September 2008....

What's more, even the GDP increase may not be all it seems.

[Gus] Faucher[, the director of macroeconomics at Moody's Economy.com.] notes that much of the jump in gross domestic product last quarter can be traced to the Obama administration's stimulus spending. This suggests that the underlying economy might be bouncing back more slowly than the 3.5 percent growth figure might indicate.

And which also, let's be sure to note, demonstrates the value of government intervention in the economy. Still,

[e]conomists worry that the recovery could falter in coming months if households cut back on spending to cope with rising unemployment, heavy debt loads and tight credit conditions

and there are predictions

that consumer spending will slow sharply in the current quarter, lowering GDP growth to perhaps 1.5 percent. Analysts said the risk of a double-dip recession cannot be ruled out over the next year.

And that may not even be the worst of it.

Job growth could be a bigger problem. Even in typical recessions, rebounds in employment lag behind GDP growth. But the gap could be even larger this time. ...

[B]eyond the 9.8 percent unemployment rate, there are also record numbers of underemployed Americans - those working part-time but seeking full-time work. When companies need to boost their output, they will likely boost the hours of those part-time workers before hiring new ones.

"We have more of these part-timers we have to burn through before we can start hiring than ever before in history," Luskin says. "The people who are really hurting - the ones who are working zero days a week - are actually last in line to get relief."

Just how bad is it?

[Ron] Blackwell[, the chief economist at the AFL-CIO,] said there is less risk of wage deflation than there had been six months ago because compensation appears to have stabilized at these low levels.

"The door to second Great Depression would [open] if we had falling incomes in real [adjusted for inflation] terms," Blackwell said. Consumers would be crushed by their high debt levels, he said.

So we're less likely to have a second Great Depression. That, friends, is the good news.