GDP good but shaky, and Wisconsin is even lagging that

Yesterday morning, we got our first look at US GDP for the 3rd Quarter of 2018. And the numbers were good...sort of.

3.5% GDP growth sounds pretty strong, but if you analyze the figures further (as Reuters did) there were two big issues that the nice topline number hid.

Farmers front-loaded shipments to China before the tariffs took effect in early July, boosting second-quarter growth. Since then, soybean exports have declined every month, increasing the trade deficit. There were also decreases in exports of petroleum and non-automative capital goods. Strong domestic demand, however, sucked in imports of consumer goods and motor vehicles.

The widening trade gap chopped off 1.78 percentage points from GDP growth in the third quarter. That was the most since the second quarter of 1985 and reversed the 1.22 percentage point contribution in the April-June period.

Some of the rebound in imports reflected a rush by businesses to stockpile before U.S. import duties, mostly on Chinese goods, came into effect. Imports are a drag on GDP growth. But some of the imports likely ended up in warehouses, adding to the stockpile of inventory, which adds to GDP.

Inventories increased at a $76.3 billion rate after declining at a $36.8 billion pace in the second quarter. As a result, inventory investment added 2.07 percentage points to GDP growth, the biggest contribution since the first quarter of 2015, after slicing off 1.1 percentage points from output in the second quarter.

Take the inventory factor out of the equation to reflect actual sales and payments to the public, and growth was only 1.4%, which is a significant slowdown from the 4.3% increase we saw in Q2.

Also what’s intriguing is that a key boost to the GDP numbers was increased government spending from the “small government” GOP. Q3 was the 4th quarter in a row when real government spending grew, with its highest amount yet this Summer, adding 0.56% to overall GDP. See, Republicans do believe in using government to grow the economy – they just don’t want you to know about it.

It's why James Hamilton at Econbrowser accurately described the report as "Strong GDP growth, weak fundamentals," noting the weak investment and export figures, and included this chart as visual evidence.

Another reason why it may not feel like a booming, 3.5% growth economy is because Wisconsin continues to lag far behind the recovery happening in the rest of the country. That was reiterated by the most recent release of the Philadelphia Fed’s coincident index for all 50 states. This shows Wisconsin to have the weakest economy in the Midwest over the last 3 months.

Growth in Phlly Fed Coincident Index, Jun-Sep 2018
Minn +1.33%
Mich +1.30%
Iowa +0.87%
Ill. +0.83%
U.S. +0.76%
Ohio +0.63%
Ind. +0.33%
Wis. +0.24%

It shows that the economies of both the state of Wisconsin and the US seem shaky as we head into the midterm elections. Both are endangered due to reckless GOP policies in the Capitols of both DC and Madison, and the Republicans that put that idiocy in place need to be taken out to have adults in charge to deal with the "Trump Recession" that seems likely to hit in 2019.