Q3 GDP Revision: Good News That Won't Make A Difference

The Commerce Department has revised third-quarter GDP up to 2.5 percent, from the previous 2 percent. The revision was due to increased consumer spending and stronger US exports.

While good news, it's not quite good enough. GDP growth must be above 3 percent to create enough jobs to lower the unemployment rate, which remains stuck at 9.6 percent.

Economists estimate the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point.

This means that if the US managed to maintain the third-quarter GDP growth rate for the entire year, it would still put us only half-way to lowering unemployment to 8.6 percent.

That's as unlikely as it is unexciting.

While the economy continues to grow, it's growing at a slower pace than in past economic recoveries. Since 1965, U.S. economic growth has averaged 3.2 percent.

Consumer spending accounts for more than two-thirds of US economic activity. The problem is that consumers are heavily in debt and have been curtailing spending from the levels seen in the go-go years of the past two decades.

You could say everyone is now finally sobering up from the spending and debt binges.

The US will remain hampered by the facts that exports account for just 12 percent of GDP and manufacturing just 11 percent of GDP.

We buy far too much from overseas, and we manufacture and sell far too little in exchange. Those issues will not be rectified any time soon. And given the cost of labor in the US compared to the developing world, they may never change.

The reality is that, as a mature, developed economy, we may have now entered a long term period of lower growth and higher unemployment.

As of September, the US trade deficit stood at $379.1 billion, up 40% from the same period in 2009. Much of that was due to our reliance on foreign oil, and that is a massive drag on our economy.

According to the Energy Information Administration, the US imported 4.3 billion barrels of oil in 2009 and 3.6 billion through the first 10 months of 2010.

So, we are on track to match, and likely exceed, last year's level. With oil at roughly $80 per barrel, this means that nearly $1 billion a day is being sent out of the US.

As oil prices continue to rise due to increasing global demand, that will put even further pressure on the US economy, slowing growth and hampering the employment picture even further.

From now on, we'll have to get used to good news being when things aren't as bad as expected.