Thursday, October 30, 2008

Another Look at GDP



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US GDP decreased .3% in the third quarter. Before we get really concerned about this report remember this is the first of three GDP reports. So the number could change.

Now -- the chart above shows what is responsible for growth and contraction in the GDP number. Note the following:

1.) Personal consumption expenditures provided a ton of bad news for the report. If this trend continues we have real problems. Remember -- PCEs account for 70% of US growth.

2.) Exports added 1.13 to the total. Do you think that will continue with the following chart of the dollar?


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3.) Government spending really helped. However, this is the largest contribution government expenditures have made to the percent change in GDP since 4Q2004.



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In other words:

1.) The consumer number is likely to continue given the weakening job market and plummeting consumer confidence.

2.) The credit crunch is likely to add to lenders woes, lowering domestic investment

3.) A higher dollar and slowing international economies are likely to lower the contribution from exports

4.) That leaves government spending propping up the economy