GDP & Economy Update

[unlawflcombatnt]

Today's GDP report revised 4th quarter GDP upward to a 1.6% annualized growth rate.
2005's real GDP increased 3.2% from 2004, according to the BEA. This gives a total increase of approximately $384 billion. Below is an abridged copy of the BEA's statistics.



The raw numbers can be found at the Dept. of Commerce's BEA site at: GDP Report

The big 4th quarter losers were Durable Orders, which changed -16.6% from the 3rd quarter, followed by net exports at -$39 billion, and government investment at -0.7%

Below is the table from Briefing.com showing the components of today's GDP release:



From the top chart, 2005's real GDP can be determined from the BEA's 2004 GDP of $11,995 (in 2004 dollars) and multiplying times 2005 stated GDP growth. ( $11,995 x 1.032 = $12.379 trillion in 2004 dollars.)

According to Bloomberg news, home equity extraction for 2005 was $234 billion. This is over half the $384 billion GDP, and does not account for any multiplier effects. Bloomberg states home equity extraction may decline to $117 billion in 2006, or $126 billion less. This information can be found at Bloomberg News U.S. Economy: New Home Sales Fall

At minimum, this directly subtracts $126 billion from the spending portion of GDP. If this $126 billion had been subtracted this year, GDP growth would have been $384 billion - $126 billion, or $258 billion. This would have reduced our GDP growth from $12.379 trillion to $12.253 trillion, or to a growth rate of only 2.1%. Again, this does not account for any multiplier effects from the spending of the money from home equity extraction.

Using an assumed multiplier of 3, and a marginal propensity to consume of 2/3, this would cause a decline in GDP to $252 billion from our 2005 GDP of $384 billion. If applied to 2005, this would leave an increase of only $132 billion, or only a 1.1% GDP increase. Is this an economy that's "strong, and getting stronger"?

unlawflcombatnt

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The economy needs balance between the "means of production" & "means of consumption."

[Viva_La_Revolution]

1. I was once told to look at Durables...

and inventory, for a good general idea of how things are going.

Durables up=good down=bad
inventory up=bad down=good

Is that still true? (or was it bullshit?)

[unlawflcombatnt]

2. Durables and Inventories

That's exactly what my understanding is, as well. It's only logical that inventory increases are a bad thing. Rising inventories represent unsold goods, which contribute nothing to incomes or business profits.

Durable orders decline is also a bad sign, but for less simplistic reasons. It represents orders for our manufactured goods. To me this means that there is less demand for such goods, and therefore less demand for labor to provide those goods. So at the minimum, it is not a good sign for hiring or wages in the manufacturing industries.

unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."

[Neil Lisst]

3. I'm troubled by the home equity extractions.

I'm glad you're staying on point with economic matters. Your analyses are always on target and accurate.

The average American has no idea what has taken place the past five years regarding debt, public and private, and how that has helped us avoid the economic consequences of the actions heretofore.

We are floating on a debt bubble.

[unlawflcombatnt]

4. Home Equity Extraction

Neil,

Thanks for your compliment. This was the 1st estimate I've seen of the actual decline in home equity extraction that might take place. Again, this amount of decline would decrease our GDP growth by a full percentage point directly, and even more if the multiplier effect is considered. (At this point it's pure speculation what that "multiplier" actually is, so it's better not to make predictions based on a specific number.)

With real wages generally declining, I think we're in for some rough times ahead.

unlawflcombatnt

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Economic Patriot Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

5. More Graphic Info

I thought I might as well include the graph from Briefing.com, to give a visible picture of the nosedive our economy took. Below is the bar graph, the red shows GDP, and the green line shows Final Sales of GDP.



unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

6. Corrected OP

My apologies to those who couldn't follow the end part of my original post. If it seemed not to make good sense, there was good reason. Because it didn't make any sense. I made a one-word mistake in the 3rd to last sentence that destroyed the meaning of the last paragraph. I wrote "GDP decline to $252 billion," instead of "GDP decline of $252 billion." I also changed a few words in the last paragraph, as I had trouble following it myself upon re-reading it.

Here's the corrected version:

Tuesday's GDP report revised 4th quarter GDP upward to a 1.6% annualized growth rate.
2005's real GDP increased 3.2% from 2004, according to the BEA. This gives a total increase of approximately $384 billion. Below is an abridged copy of the BEA's statistics.



The raw numbers can be found at the Dept. of Commerce's BEA site at: GDP Report

The big 4th quarter losers were Durable Orders, which changed -16.6% from the 3rd quarter, followed by net exports at -$39 billion, and government investment at -0.7%

Below is a copy of the table from Briefing.com showing the components of today's GDP release:



This table can also be viewed at: Birefing.com-GDP overview

From the BEA chart (2nd from the top), 2005's real GDP can be determined from the BEA's 2004 GDP of $11,995 (in 2004 dollars) and multiplying times 2005 stated GDP growth. ( $11,995 x 1.032 = $12.379 trillion.)

According to Bloomberg news, home equity extraction for 2005 was $234 billion. This is over half the $384 billion GDP, and does not account for any multiplier effects. Bloomberg states home equity extraction may decline to $117 billion in 2006, or $126 billion less. This information can be found at Bloomberg News U.S. Economy: New Home Sales Fall

At minimum, this directly subtracts $126 billion from the spending portion of GDP. If this $126 billion had been subtracted this year, GDP growth would have been $384 billion - $126 billion, or $258 billion. This would have reduced our GDP growth from $12.379 trillion to $12.253 trillion, or to a growth rate of only 2.1%. Again, this does not account for any multiplier effects from the spending of the money from home equity extraction.

Using an assumed multiplier of 3, and a marginal propensity to consume of 2/3, this would cause a decline in GDP of $252 billion from our 2005 GDP of $384 billion. If subtracted from our 2005 GDP, this would leave an increase of only $132 billion, or only a 1.1% GDP increase. Is this an economy that's "strong, and getting stronger"?

unlawflcombatnt

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Economic Patriot Forum

_________________
The economy needs balance between the "means of production" & "means of consumption."