Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Gold and Silver The Die Is Cast - 27th Feb 20
US Economy Permanently Addicted to Zero Interest Rates - 27th Feb 20
Has the Stock Market Waterfall Event Started Or A Buying Opportunity? - 27th Feb 20
Advantages of Enrolling in a Retirement Plan - 27th Feb 20 - LS
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Economic Report Card

Economics / US Economy Sep 07, 2012 - 12:43 PM GMT

By: Richard_Mills

Economics

Best Financial Markets Analysis ArticleLet's ask ourselves two simple questions;

  • How do economists, and Federal Reserve chief Ben Bernanke is an economist, discern whether an economy is growing, is vibrant and healthy? Well, for most economists it's a simple number, they use a country's Gross Domestic Product (GDP) to measure the state of the economy.
  • What's the most important thing for a politician? The answer is getting reelected.

Wikipedia defines GDP as "the market value of all officially recognized final goods and services produced within a country in a given period."

There are three - product/output, income approach and the expenditure approach - different ways to calculate GDP, all of which should give the same result. The expenditure approach to measuring GDP basically measures the total amount of spending, at market prices, by individuals (end users) for one year, on newly-produced goods and services - GDP measures how much money we spend.

The four major components of the GDP are: consumption, investment, government purchases, and net exports.

Consumption spending: Household buyers and consumers, me, thee and our families and friends, are counted as Consumption Spending and we account for about 70 percent of the expenditure that comprises GDP in the US. Consumption Spending is divided into three categories: durable goods (items expected to last more than three years), nondurable goods (food and clothing), and services.

Investment spending: Investment Spending covers three categories: nonresidential (spending on plants and equipment), residential (single-family and multi-family homes), and the change in business inventories.

Government spending: Governments pay salaries, order supplies, spend on defense, roads, schools, etc.

Net exports: Imports deduct from GDP and exports add to the final tally. In recent years, the U.S. has consistently experienced imports exceeding exports.

The GDP is considered the nation's report card because it provides the broadest measure of economic activity. What does the US's latest report on the state of the economy, the US's GDP report card, say in regards to further monetary easing, yes or no? Lets break it down into a pro/con list, the pro's are actually negative stats but are positive for more quantitative easing (QE).

Second Quarter Report Card, Pro

  • The Commerce Department said gross domestic product expanded at a 1.7 percent annual rate. GDP growth is sluggish - the economy's average sustainable growth rate has historically been between 2.5% and 3.0% - a growth rate of between two percent and 2.5 percent is generally seen as needed just to hold the jobless rate steady
  • The unemployment rate ticked up to 8.3 percent in July (and has exceeded eight percent for 42 straight months) so despite the Fed's best efforts the unemployment rate is still climbing, payroll increases averaged 73,000 in the second quarter, down from 226,000 in the prior three months. More disturbing, nearly half of the unemployed people in the US have now been out of work for six months or longer, that's up from the traditional median unemployment duration of ten weeks
  • Consumer spending, which accounts for about 70 percent of U.S. economic activity, was 1.7 percent, down from the first quarter's 2.4 percent pace. A smaller rise is expected for the third quarter with demand for big-ticket items such as automobiles cooling
  • Rising fuel costs and the prospect of tax changes and government budget cuts - the so called "fiscal cliff" in the U.S., the $600 billion of tax increases and spending cuts that will take effect automatically at the end of the year are hurting consumer confidence
  • There was a pull-back in restocking by businesses wary of sluggish domestic demand. Also growth in business investment in equipment and software was lowered to a 4.7 percent pace, the slowest since the third quarter of 2009 and softer export growth is expected. Factory orders data showed demand for non-defense capital goods excluding aircraft - a measure watched as an indicator of business confidence and future spending - fell 4 per cent in July, following a 1.7 per cent decline in June. The months of May and April saw declines of 2.1 per cent

There are bright spots, Con

  • Stronger export growth
  • Wages and salaries from April through June rose by $56.1 billion after a revised $133.5 billion first-quarter gain that was bigger than the previous estimate of $123.3 billion
  • Disposable income adjusted for inflation rose 3.1 percent from April through June after a 3.7 percent gain in the first quarter
  • The saving rate in that same period climbed to four percent from 3.6 percent in January through March
  • The index of pending home re-sales climbed 2.4 percent to 101.7, the highest since April 2010

Reason, and Room, to Ease

"We have seen no net improvement in the unemployment rate since January. Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time." Federal Reserve chief Ben Bernanke

Inflation is still near the central bank's goal of two percent, a measure of prices excluding food and energy costs tied to consumer spending climbed at a 1.8 percent annual pace in the second quarter - the combination of high unemployment and slow GDP growth removes upward pressure on prices.

Growing the Economy

How do you get an increase in economic growth, how do you grow an economy? By increasing the GDP. And how do we do that? By increasing one or some combination of the four components of GDP:

  1. Consumption Spending - consumers are retrenching and paying off debt
  2. Investment Spending - businesses are sitting on their cash hoards and not reinvesting in inventory, plants, machinery and software
  3. Government Spending - they have control of the printing press
  4. Net Exports - business cannot be competitive without modern well maintained infrastructure, plants, machinery and software

Without an increase in one (or some combination) of these components of total spending, GDP cannot increase. Who, out of the household sector, the business sector, the government sector (state/local or federal) or the import/export sector is in a position to take the lead on spending?

Answer, Government Sector, Federal

As I said, the most important thing to a politician is getting reelected - most people will vote for the guy who promises they will keep the job they presently have, will improve their prospects for a better job, or simply promises them a job.

What has historically driven the American economy is consumer spending - what drives consumer spending? Consumer confidence, but confidence, and the willingness to spend money, comes from having a secure job, a regular pay cheque you can count on.

"Household buyers and consumers, me, thee and our families and friends, are counted as Consumption Spending and we account for about 70 percent of the expenditure that comprises GDP in the US."

Here's how they put Americans back to work and ramp up consumer confidence levels so they start spending again:

  • The "fiscal cliff," the $600 billion in budget cuts and tax increases slated for the new year, must be eliminated. This would go a long way to restore consumer confidence
  • Democrats, Republicans and the Federal Reserve need to stop the petty infighting and bickering and work together to create a plan to put people back to work. If the US could show there was a concrete plan put together, and publically endorsed, by all three interests, and that it was going to be followed, this would go a long way to restore confidence, internally as well as globally
  • The Federal Reserve needs to communicate to consumers and business better, for example - interest rates are going to stay at their present low rates until a clearly defined moment occurs - it's not enough to say rates might stay low till 2014, tell business and borrowers they will be low till "this" happens.
  • A third round of asset purchases should be started and not stopped until the employment picture has improved for several straight months

"You know, if you look back in the 1930s, the money went to infrastructure. The bridges, the municipal buildings, the roads, those were all built with stimulus money spent on infrastructure. This stimulus bill has fundamentally gone, started out with a $500 rebate check, remember. That went to buy flat-screen TVs made in China." Michael Bloomberg

"Large-scale asset purchases can influence financial conditions and the broader economy through other channels as well. For instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors' expectations for the future path of the federal funds rate and putting additional downward pressure on long-term interest rates, particularly in real terms. Such signaling can also increase household and business confidence by helping to diminish concerns about "tail" risks such as deflation. During stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors." Snippet from Federal Reserve head Ben Bernanke's recent Jackson Hole speech

An Infrastructure Spending Plan is Key

The American Society of Civil Engineers (ASCE) 2009 Report Card for America's Infrastructure graded the U.S. infrastructure with a "D."

The Society has recently published three Failure to Act reports, studies on surface transportation and water were released in 2011, the ASCE report on electricity infrastructure was released in April of 2012.

Deteriorating surface transportation infrastructure will cost the American economy more than 876,000 jobs and suppress the growth of our GDP by $897 billion by the year 2020.

Drinking water and wastewater infrastructure is aging and overburdened. A modest increase in investment will:

  • Protect $416B in GDP
  • Protect almost 700,000 jobs
  • Avoid personal income losses of $541B

Closing the electricity investment gap of $107 billion would lead to fewer brownouts and blackouts and save US businesses $126 billion, prevent the loss of 529,000 jobs and $656 billion in personal income losses for American families.

"A devastating commentary on the war in Iraq is that we have been unable to spend money on infrastructure." Charles Schumer

Conclusion

Government spending on infrastructure would revive the economy by putting people back to work, consumer confidence would increase, spending would increase.

Inventories would need to be restocked, business would invest in new plants and equipment. American business would become more competitive because of the increased quality of modern infrastructure, exports would increase, imports decrease.

The GDP Report Card would show straight A's and a note on the bottom would read job well done.

The ASCE's Failure to Act reports should be on every politicians, and every voters, radar screen. Are they on yours?

If not, maybe they should be.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com
Site membership is free. No credit card or personal information is asked for.

Richard is host of Aheadoftheherd.com and invests in the junior resource sector.
His articles have been published on over 400 websites, including: Wall Street Journal, Market Oracle, SafeHaven , USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

Copyright © 2012 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules