Watch CBSN Live

Weak GDP is another blow to economy

COMMENTARY The government lowered its estimate of third-quarter growth of the United States' gross domestic product. The numbers reveal that our not-so-robust recovery is even weaker than first reported:

Real gross domestic product ... increased at an annual rate of 2.0 percent in the third quarter of 2011 ... according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimates released today are based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.5 percent ...

The downward revision was mostly due to an adjustment of real private inventories, which were lower than first reported. The revised estimate of 2 percent is better than second-quarter growth of 1.3 percent, but it is still below the 2.5 percent 3 percent growth rate needed to keep up with our expanding population. And it is nowhere near the 3 percent to 4 percent growth rate we need to reabsorb the millions of workers who have lost jobs and remain unemployed because of the recession.

Combining the downward revision in GDP growth with the news that the supercommittee failed to reach agreement on long-term debt reduction -- not to mention the potential problems in Europe -- the outlook for the economy is even worse than before.

The supercommittee was expected to find a way to extend the 2 percent payroll tax cut that was put in place to combat the recession and to extend unemployment benefits -- both are scheduled to end in December if Congress does not act. Its failure means it's much less likely either policy will be extended.

These factors -- the downward revision in GDP growth, the end of extended unemployment insurance, the end of the payroll tax cut, and potential problems from Europe pose substantial risks to the economic outlook and both monetary and fiscal policymakers must recognize the threat and take action.

While I see no reason to let fiscal policymakers off the hook, I gave up on them long ago. I just hope they won't make things worse by imposing substantial deficit reduction before the economy is ready for it. But monetary authorities -- the Federal Reserve -- ought to be acting now to bolster the economy further, especially given the substantial risks from Europe and elsewhere, and it's disappointing that they haven't done more already.