GDP grew at a 3.5 percent annual rate in the 3rd quarter, driven by a 22.4 percent jump in car sales, the result of the Cash for Clunkers (C4C) program. This increase in car sales accounted for 42.0 percent of the growth in the quarter. Consumption as a whole, which grew at a 3.4 percent annual rate, added 2.36 percentage points to growth. Other components making large contributions to growth were inventories, which added 0.94 percentage points; national defense, which added 0.45 percentage points; and residential construction, which added 0.53 percentage points, its first positive number since the fourth quarter of 2005.
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Defense spending continues to be an important factor pushing the economy as it has grown rapidly even as the economy has shrunk. Defense spending now accounts for 5.6 percent of GDP, the largest share since the first quarter of 1993. By comparison, it peaked at 7.6 percent in the 3rd quarter of 1986, at the height of the Reagan build-up. In its last pre-September 11th projections, the Congressional Budget Office projected defense spending for 2009 as 2.4 percent of GDP. ...
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