Category Archives: U.S. GDP

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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Fourth Quarter GDP Report Shows Economy Growing

Posted on March 2, 2012 by admin

On February 29 th the U.S. Department of Commerce’s Bureau of Economic Analysis released their report on the GDP for the fourth quarter of 2011 .  The results are in line with what many of the other economic reports have been showing.  The economy is growing, but at a moderate pace. The GDP increased at an annual rate of 3%, a rise up from 1.8% annual rate experienced in the third quarter, and beating the advanced estimate of 2.8%. This increase represents the fastest growth since the second quarter 2010.  It was led largely by a jump in private inventories which were down $2B in the third quarter, yet up $54B in the fourth.  Coupled with an increase of personal spending, especially on durable goods which was up 15.3% the overall economy grew at a faster rate than what was expected.  A year-over-year rate of 1.62% shows the economy is still growing at a moderate pace ( chart here ). To investors good GDP growth is a strong indication that the stock market will continue to increase.  The more money that is flowing, and the larger the increase, means that companies are seeing great profits and increasing their inventories.  Increased inventories are indicative that these companies see the increased sales to continue.  While a strong GDP is great for those who are investing in the stock market, it can have negative effects on the bond market.  A fast growth can ultimately lead to inflation; inflation leads to lower bond prices.  This is why a good solid rate of 3% for the GDP is the best thing for a recovering economy.  Too much faster and the bond market will start to suffer, and too much slower will cause the stock market to suffer. The BEA issues an advance release 4 weeks after the quarter end, followed by another release at 8 weeks, and the final release 12 weeks after the end of the quarter.  The GDP is often considered to be the broadest measure of economic activity, and is “ an aggregate measure of total economic production for a country .”  Simply put, it is what the country is worth, and how fast the value of the country is increasing.  The report is looked upon with anticipation by investors.  By looking at four categories (personal consumer expenditure, investment expenditure, net exports, and government expenditure) the GDP paints a great picture of what is happening in the economy.  Then the data is presented on an annualized basis, so a 3% growth does not mean 3% in the fourth quarter, but rather .75% in the fourth quarter.  Since the quarterly numbers will fluctuate depending on seasons, the year-over-year percent will help to produce a less volatile outlook on the economy. 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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