2.5%

The economy grew at an annualized rate of 2.5% in the third quarter of 2011, according to the Bureau of Economic Analysis (a division of the Commerce Department).

That’s not bad. It’s better than expected. However, it’s not really good either. See, 2.5% w0uld be absolutely, spot-on perfect if the economy was doing well. If you had 4-5% unemployment and wages were rising, this is the number you would love to see. It’s a perfect coasting—no acceleration or deceleration.

Unfortunately, it’s perfect coasting, and we need to be going faster. According to this chart, at the 2.5% growth rate, you’re looking at about 2020 before we cover the output gap we’ve been stuck in since the recession.

But, it’s kind of good news. It means that the likelihood of a double-dip recession is smaller. It means we’re picking up a little steam. It means we’re, well, coasting, not falling. The last time growth was this high was in the thick of the Recovery Act spending, and that’s not really a factor anymore.

Here are some particulars:

This is the second quarter that nonresidential fixed investment has gone up by double-digits. Structures are down a tad, but equipment and software are way up. This I believe is the confluence of a number of factors, not the least important are companies adopting Windows 7 (I know personally of three large companies that made the switch over the late summer) and iPads, and abandoning Blackberries for more modern devices. Those are the biggest tech stories of the past year, and I think that’s starting to show.

Another good sign: Consumer spending is up 2.4%. Durable goods are up 4.1% (compared to a loss last quarter). That’s appliances, but, more importantly, cars. People are buying cars.

Those number would lead you to believe that the overall growth rate would be higher. Usually. However, a drop in inventories killed the total rate by 1.08%. Why? What happens when you fear that the economy is about to collapse? You stop making stuff. So, people bought out the store and the producers stopped making more. So, if the companies made enough stuff to compensate for what they sold, you’d be looking at something like 3.6% growth.

That’s good news.

Related posts:

1. Tax cuts don’t create jobs
2. Look at these fucking top marginal tax rates in a historical context
3. Who wins the income growth game, or, the abject failure of Reagan economics