Military Spending Boosts Third Quarter GDP
The advance estimate for third quarter GDP growth came in at a better-than-expected 2.0%. This was up from 1.3% growth in the second quarter and, on the surface, it looks like good news. With the election just days away, the headline number is extremely important to the Obama administration. A 2-handle on GDP growth this far along in an economic recovery is weak, yet it helps make the case that things are getting better.
The market, however, took it as a non-event. Perhaps investors noticed that a good chunk of the increase was due to government spending. Indeed, real (as opposed to nominal) national defense spending surged 13%. Conspiracy theorists might say that the government accelerated military spending in order to boost the GDP report and help make President Obama’s case for reelection. I think it is more likely that the accelerated spending was due to the pending sequestration. Unless Congress acts soon, the military budget will be slashed. The increased spending at this time could simply be the Pentagon’s way of preparing for the expected cuts.
Whatever the reason, it is extremely disheartening to realize that even with this huge surge in defense spending, third quarter GDP climbed just 2.0%. In fact, growth would have been just 1.4% had defense spending remained flat. No doubt this is information many Obama supporters would prefer the electorate not to know.
Vahan Janjigian is Chief Investment Officer at Greenwich Wealth Management, LLC, a SEC Registered Investment Adviser, where he manages portfolios for clients in separate accounts. Dr. Janjigian is a former Forbes magazine columnist and former Editor of the Forbes Special Situation Survey. According to Hulbert Interactive, his stock picks returned more than 18% annually during one of the market’s worst 10-year periods.
Dr. Janjigian holds the Chartered Financial Analyst designation and has earned degrees in general sciences and finance from Villanova University and Virginia Polytechnic Institute and State University (Virginia Tech). He previously served on the faculties of several universities, including the University of Delaware, Northeastern University, the American University of Armenia, and Boston College, where he taught courses in corporate finance, financial theory, investments, accounting, and economics; and he currently teaches a seminar on equity investment management to business executives in Singapore through Baruch College’s Zicklin School of Business. Dr. Janjigian has served as an expert witness on matters involving portfolio management, churning, suitability, and hedge fund manager compensation.
Dr. Janjigian has published his research in numerous scholarly and professional journals; and has been quoted in many leading newspapers and magazines, including Barron’s, Forbes, The Wall Street Journal, and USA Today. He appears as a guest commentator on various television and radio networks, including Fox, CNBC, MSNBC, and CBS Radio. Dr. Janjigian is the author of Even Buffett Isn’t Perfect (published by Penguin) and co-author of The Forbes/CFA Institute Investment Course (published by Wiley).