GDP & the Economy

unlawflcombatnt · 03-30-2006, 11:07 PM

Today's final 4th quarter 2005 GDP report came in showing a 1.7% annualized growth rate for the quarter. Though this decline is concerning, the actual breakdown of contributions is even more concerning. The total increase in GDP during the 4th quarter was only $46 billion in chained 2000 dollars. (i.e., it was adjusted for inflation using the government-controlled BEA's own secret formula.)

Normally, consumer spending is 2/3rds of economic activity. This was not the case in the 4th quarter, however. In fact, personal consumption expenditures accounted for only $17.5 billion of that growth, or only 38%. The biggest contribution came from capital investment (overinvestment?) The total gross private domestic investment was $72.5 billion, or over 4 times as much as consumer spending. Of this investment, $51.2 billion is accounted for as increase in private inventories. In other words, $51.2 billion of the contribution to that $46 billion came from unsold goods (surplus.) With a GDP growth as low as it was, and an increase in unsold goods greater than the GDP increase, there are no signs that this is an economy that is "strong, and getting stronger." Producing 4 times more goods than Americans can purchase is a recipe for disaster. Since American consumers account for 80-90% of the purchase of American goods, this is especially concerning.

To complete the picture, the subtractions from the total GDP should be mentioned. Our 4th quarter trade balance was -$37.7 billion. Government spending declined $4-6 billion. (I'm giving a range, since the published numbers don't add up perfectly.)

Below is a modified copy of a chart showing this information from the U.S. Bureau of Economic Analysis:

The above chart can be found in its entire (unreadable) form at: BEA-GDP

Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course.

unlawflcombatnt

Undertoad · 03-31-2006, 06:59 AM

I took a look through historical data and rate of spending increases on investment versus personal consumption seems to have nothing to do with economic health. Like, zero correlation man.

And stating things in terms of rate of increase is almost always weasel economics. "Both investment and spending went up, but investment went up faster!" Well oh dear, man the fucking lifeboats. I'm sure if it were the other way around you'd say we're merely spending ourselves away.

Good economists don't cherry-pick from the numbers to create the narrative they like. The economy was bad two years ago and it's good today. Sorry, that's what it does, the inevitable business cycle and all.

03-30-2006, 11:07 PM	#1
unlawflcombatnt Layperson Join Date: Mar 2006 Location: California Posts: 13	GDP & the Economy Today's final 4th quarter 2005 GDP report came in showing a 1.7% annualized growth rate for the quarter. Though this decline is concerning, the actual breakdown of contributions is even more concerning. The total increase in GDP during the 4th quarter was only $46 billion in chained 2000 dollars. (i.e., it was adjusted for inflation using the government-controlled BEA's own secret formula.) Normally, consumer spending is 2/3rds of economic activity. This was not the case in the 4th quarter, however. In fact, personal consumption expenditures accounted for only $17.5 billion of that growth, or only 38%. The biggest contribution came from capital investment (overinvestment?) The total gross private domestic investment was $72.5 billion, or over 4 times as much as consumer spending. Of this investment, $51.2 billion is accounted for as increase in private inventories. In other words, $51.2 billion of the contribution to that $46 billion came from unsold goods (surplus.) With a GDP growth as low as it was, and an increase in unsold goods greater than the GDP increase, there are no signs that this is an economy that is "strong, and getting stronger." Producing 4 times more goods than Americans can purchase is a recipe for disaster. Since American consumers account for 80-90% of the purchase of American goods, this is especially concerning. To complete the picture, the subtractions from the total GDP should be mentioned. Our 4th quarter trade balance was -$37.7 billion. Government spending declined $4-6 billion. (I'm giving a range, since the published numbers don't add up perfectly.) Below is a modified copy of a chart showing this information from the U.S. Bureau of Economic Analysis: The above chart can be found in its entire (unreadable) form at: BEA-GDP Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course. unlawflcombatnt

03-31-2006, 06:59 AM	#2
Undertoad Radical Centrist Join Date: Jan 2001 Location: Cottage of Prussia Posts: 31,423	I took a look through historical data and rate of spending increases on investment versus personal consumption seems to have nothing to do with economic health. Like, zero correlation man. And stating things in terms of rate of increase is almost always weasel economics. "Both investment and spending went up, but investment went up faster!" Well oh dear, man the fucking lifeboats. I'm sure if it were the other way around you'd say we're merely spending ourselves away. Good economists don't cherry-pick from the numbers to create the narrative they like. The economy was bad two years ago and it's good today. Sorry, that's what it does, the inevitable business cycle and all.

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