The U.S. economy grew a little slower over the summer than previously reported. The Commerce Department says third quarter GDP was up just 2 percent, down from the previously reported 2.5 percent gain. The revision was largely related to businesses cutting back on inventory. Few economists were expecting the drop and it sure looks like a disappointment -- until you start picking through the numbers, particularly in consumer spending and corporate profits. Even the drop in inventories could portend good news.
We talked with Jim Paulsen, chief investment strategist at Wells Capital Management. He says over the summer companies bought into fears of a double-dip recession and dumped a bunch of inventory. Problem is, they overdid it. So there’s a good chance that companies will have to make more stuff this quarter to get inventories back up to where they need to be. Final sales -- the total measure of goods and services sold -- were up solidly to 3.6 percent. Paulsen says we're prone to overact to financial data right now, the way drivers are cautious after an accident. These days everyone -- investors, businesses, political leaders -- are worried there's another crisis just around the bend.
Paulsen reads the data as a sign of a continued recovery. The economy needs to grow faster to get people back to work, he says, but as companies rebuild their inventories, fourth quarter GDP is likely to be good. Paulsen’s also optimistic the Dow will close the year up around 13,000. That would be a double-digit rise from today’s numbers. As long as this recovery continues to make progress, maybe even at its current frustratingly slow rate, it's going to turn out better than most people fear.
We’ll certainly know more in the coming two weeks when we’ll hear both initial holiday retail figures and next month’s jobs report.
Also on the show today, Congress is looking at a bill that to make the first piece of luggage fly for free.
The airline industry says only a quarter of us check a bag these days, which may explain the fight for overhead space on the plane. Homeland Security said earlier this year that TSA screening for all the extra carry-ons these days costs taxpayers an extra $260 million price tag.
If passed, the new law would let everyone get a checked bag and a carry on bag for free. Checked bag fees generate billions for the airlines, so expect a fight. Nevertheless, the Marketplace Daily Pulse is up today.