Category Archives: gross domestic product

GDP Growth Rate Declines to 2.2 Percent

Posted on April 27, 2012 by admin

The American economy, as measured by the Gross National Product (GDP) grew at a slower rate than predicted. Gross domestic product represents one of key economic indicators for measuring the strength of the economy in the production of goods and services. In the first quarter of 2012, GDP increased at a 2.2 percent pace. The GDP growth rate for the final quarter of 2011 was 3 percent. Even with the slowdown, the current expansion rate of 2.2percent meets the rate of growth considered by many economists as a “sustainable” or sufficient to keep the economy moving toward a recovery. The 85 economists surveyed by Bloomberg News expected a median growth rate of 2.5%. Consumer spending continues to drive the economy, as sales at retail stores and automobile dealerships increased. Pent-up demand has increased, undoubted fueled by a better job market—635,000 positions added in the first quarter, and slight increase in income. Business spending for equipment and inventory decreased. Government expenditures also declined. Business spending investment in software and equipment grew at a slower rate at 1.7 percent– compared to 7.5 percent in February– the worse showing in 36 month. This category added just 0.1 percent to the GD. Inventories tacked on another 0.6 percent to GDP. Is a 2.2 Growth Rate Acceptable? In light of predictions, earlier predictions made by economists predicted that first-quarter growth would be even weaker, because of the series of good economic news from in indicators released over the previous weeks; many economists increased the numbers for their projections. Many economists view the weaker first quarter growth as “normal” gyrations for an economy that does not move in a linear line. Not all economists show as much optimism about the 2.2 percent growth rate. Steven Blitz, the chief economist of ITG Investment Research, believes the proper focus consist of whether the current definition of a “sustainable” growth rate adequately considers needs based on the present economy. The Federal Reserve Board projects a growth rate for 2012 of between 2.4 percent and 2.9 percent. This is an adjustment from 2.2 percent to 2.7 percent. The Fed expects the economy to   grow at a “moderate” pace in the quarters ahead and to begin expanding at a steady rate. Conclusion It may be a little hard to believe, but the U.S. economy out performed economies in the U.K., which has dipped back into a recession. The double –dip represents the first such occurrence since the 70s. The GDPs of Germany and Japan decreased in the final quarter of 2011. The once torrid Chinese also shows signs of contraction. Overall, the indicators impacting the GDP growth rate continued to show mixed signs. For example, durable goods orders rose, but new orders fell to the lowest level since January 2009. In addition, employment remains above 8 percent and jobless claim increased last week. However, the trade balance shows improvements. Continue reading →

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GDP Growth Shows Modest Economic Recovery

Posted on March 30, 2012 by admin

On March 29, the Bureau of Economic Analysis released the report on the Gross Domestic Product, 4 th quarter 2011 and annual 2011. As the third report, it was the first to include corporate profitability numbers. The numbers in the report indicated good news for average consumers, although the news for corporations and shareholders was not as positive. According to the report, real gross domestic product (GDP) increased at an annual rate of 3.0 percent between the third quarter and the fourth quarter in 2011.  This matched the second estimates for the overall number. Imports, which are subtracted when calculating the GDP, also increased. This increase and acceleration of the real GDP was largely driven by personal consumption expenditures (PCE), private inventory and nonresidential fixed investment and exports. Some of this residential fixed investment was offset by government spending and negative contributions from the federal government The demand numbers remained unchanged, but were incrementally increased for domestic purchasing with an annualized increase of 1.1 percent. This too matched prior estimates for the fourth quarter.  Final sales to domestic purchasers, excluding net exports, rose more than expected to a revised 1.3 percent as compared to the 1.1 percent predicted in the second estimate. Component changes were also modest, but reflected a small downward revision in regards to inventory investment and a small upward revision of goods PCEs. According to the report, profit slowed in every quarter of 2011. GDP growth in profits before tax slowed down to 4.2 percent, as compared with 25 percent in 2010. This means profit growth has slowed in every quarter of 2011.  The growth in dividends slowed as well: in 2010, it was 18.9 percent and in 2011 it was down to 10.3 percent. Two sectors where profit growth was strongest include machinery firms and fabricated metal products, and this growth was largely driven by tax breaks encouraging investment and by changes made following the Great Recession. With the tax breaks expired now, it is likely that this growth will slow going forward. This data was largely as expected based on prior estimate and confirms most analysts’ opinion about the current state of the economy. It also indicates that corporations are not having success in increasing output without increasing employees, suggesting that it will be necessary to increase hiring in order to increase profits. This presents some positive news for job seekers and is supported by the job growth numbers. Continue reading →

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U.S. GDP Edges Up in Fourth Quarter

Posted on January 30, 2012 by admin

The U.S. Department of Commerce’s Bureau of Economic Analysis recently released figures that show that the Gross Domestic Product (GDP) increased in the fourth quarter of 2011. The modest increase demonstrates a slow pace for economic recovery, but it was the fastest growth in more than a year. The overall GDP for 2011 rose 1.7%, compared to a 3.0% increase in 2010. The Report: The GDP measures the output of goods and services produced by labor and property in the U.S. In the fourth quarter the GDP increased 2.8%, surpassing the third quarter figure of 1.8%.  The GDP saw increases in personal consumption expenditures (PCE), inventory investments, exports, and residential and nonresidential fixed investment.  PCE increased 2.0% in the fourth quarter compared to 1.7% in the third.  Inventory added 1.94% to the fourth-quarter GDP, after a drop of 1.35% in the third quarter. Exports went up 4.7% in both the third and fourth quarters.  The GDP saw declines in federal government expenditures of 7.3% in the fourth quarter, compared to an increase of 2.1% in the third. Local and state government expenditures continued to decline 2.6% in the fourth quarter following a 1.6% drop in the third quarter.  Imports increased 4.4%, making a negative contribution to the U.S. GDP. The price index for gross domestic purchases increased 0.8% in the fourth quarter, following a 2.9% increase in the third quarter. When food and energy prices are excluded, the price index increased 1.0% in the fourth quarter and 1.8% in the third.  Disposable personal income increased 1.5% in the fourth quarter compared to a meager 0.4% increase in the third quarter. What It Means to Consumers:   The GDP is the most comprehensive index of economic activity in the U.S. and therefore is an important indicator for the health of the economy.  GDP figures influence many investors’ investment decisions.   Since the report includes information about the health of different sectors of the economy, it also suggests to investors which areas are good investment bets. Although the overall GDP increase was a positive sign, a large amount of the gain (1.94%) came in the form of increased inventory rather than from PCE (which would reflect an increase in consumer spending).  Therefore much of the rise can be attributed to goods sitting in warehouses rather than actual consumer spending. Excluding inventory investment, the increase was only 0.8%. Predictions:   The 2.8% increase was below the predictions.  A survey of 79 economists by Bloomberg  ranged from 2.4% to 4.5%, with a median predicted increase of 3.1%.  Analysts agreed that the 2.8% figure was a positive sign, but represents a slow pace of recovery.  The stock market declined in reaction to the news. Continue reading →

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