posted on 29 January 2016
The advance estimate of fourth quarter 2015 Real Gross Domestic Product (GDP) is a positive 0.7 %. This is a significant decline from the previous quarter's 2.0 % if one looks at quarter-over-quarter headline growth. However, year-over-year growth declined so one could say economic growth was mixed. There are significant "buts" relative to this advance GDP estimate (see below). The major reasons for the decline in GDP growth were personal consumption for goods, fixed investment, and inventories.
The market expected:
One must consider:
Real GDP Expressed As Year-over-Year Change
Real GDP is inflation adjusted and annualized - and Real GDP per capita remains on a general upward trend.
Real GDP per Capita
The table below compares the 3Q2015 third estimate of GDP (Table 1.1.2) with the advance estimate of 4Q2015 GDP which shows:
The arrows in the table below highlight significant differences between 3Q2015 and 4Q2015 (green is good influence, and red is a negative influence).
What the BEA says about this advance estimate:
Inflation continues to moderate as the "deflator" which adjusts the current value GDP to a "real" comparable value continues to moderate. The following compares the GDP deflator to the Consumer Price Index:
Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. We've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.24% average (arithmetic mean) and the 10-year moving average, currently at 1.39 percent.
Note: The headline 0.7% GDP is 0.69% at two decimal places.
Here is a log-scale chart of real GDP with an exponential regression, which helps us understand growth cycles since the 1947 inception of quarterly GDP. The latest number puts us 14.7% below trend, the largest negative spread in the history of this series.
A particularly telling representation of slowing growth in the US economy is the year-over-year rate of change.
In summary, the Q4 GDP Advance Estimate of 0.7 percent was in line with mainstream estimates and well below the 2.0 percent Q3 Third Estimate.
Caveats on the Use of Gross Domestic Product (GDP)
GDP is market value of all final goods and services produced within the USA where money is used in the transaction - and it is expressed as an annualized number. GDP = private consumption + gross investment + government spending + (exports − imports), or GDP = C + I + G + (X - M). GDP counts monetary expenditures. It is designed to count value added so that goods are not counted over and over as they move through the manufacture - wholesale - retail chain.
The vernacular relating to the different GDP releases:
Consider that GDP includes the costs of suing your neighbor or McDonald's for hot coffee spilled in your crotch, plastic surgery or cancer treatment, buying a new aircraft carrier for the military, or even the replacement of your house if it burns down - yet little of these activities is real economic growth.
GDP does not include include home costs (other than the new home purchase price even though mortgaged up the kazoo), interest rates, bank charges, or the money spent buying anything used.
It does not measure wealth, disposable income, or employment.
In short, GDP does not measure the change of the economic environment for Joe Sixpack in 1970, and Joe Sixpack's kid, yet pundits continuously compare GDP across time periods.
Although there always will be some correlation between all economic pulse points, GDP does not measure the economic elements that directly impact the quality of life of its citizens.
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