Last week, the second estimate of 4Q2010 Gross Domestic Product (GDP) was issued. It showed a rather paltry 2.8% economic growth.
The way GDP is designed – it is not a true measure of an advanced economy. It is designed to measure economic growth of an emerging economy. An advanced economy’s growth cannot be measured necessarily by measurements of brick and mortar or investment.
This kind of approach also leaves open too many questions relative to population growth and methodology in determining change in dollar value (analysis here).
The question really is a definition of an economy. My colleague Derryl put it succinctly in Profits for a Few Can Not Replace Real Jobs:
“The people” need to work to earn a living. That’s called “having an economy”.
An economy is the sum of trading work and goods between all the people. Modern economies use money for this trade. GDP measures the “productive” use of money. GDP measures less than half of all money flows. Econintersect believes GDP does not properly measure “productive” use of money.
Economists are saying the economy has fully recovered from the Great Recession – yet Main Street remains in a depression. The reason comes from GDP itself. Simply isolating the goods and services Joe Sixpack from GDP, the economy is no where near recovered.
You see, GDP takes credit for exports and debits imports. Yet Joe Sixpack is trading what he earns for products and services. To see the economy of Joe Sixpack, you have to look at the sum of what he is trading.
Econintersect uses a forward looking economic indicator which uses non-monetary pulse points that have a general – not specific correlation with Gross Domestic Product (GDP). These pulse points are geared to anticipate consumer and industrial income / spending for 30 to 60 days after the indicator is issued.
Econintersect counts units of things other then money – and is specifically designed to measure Main Street and Joe Sixpack’s world.
March 2011 Economic Forecast
The “real” economy – the economy of Joe Sixpack continues to expand. The strength of this growth is considered moderate with positive underlying trend lines. Putting this into perspective – the economy is likely improving on a per capita basis.
- In last month’s forecast, we warned of a black swan possibility of an economic reversal due to the start of unrest in oil producing countries. This is no longer a black swan – but a known event underway – and seemingly now priced in to the economy.
- Econintersect is unable to forecast employment levels using this methodology. There is little correlation between the Econintersect Economic Index (EEI) and employment since the beginning of the Great Recession.
The EEI has improved from +0.25 to +0.55.
One major component of the EEI is transport related. Econintersect considers transport (truck, rail and sea container) counts a primary economic pulse point – and its trend represents underlying economic pressure.
This month, the transport portion of the EEI index continued its upward trend. This portion of the index is quite noisy as it quantifies the month-over-month (MoM) change (positive numbers indicate seasonally adjusted MoM growth, negative numbers represent seasonally adjusted MoM contraction).
To Econintersect, transports represent the pulse of the real economy – the economy of Joe Sixpack. All of our man made surroundings, the clothes we wear and the food we eat are moved several times by transport during their processing / delivery cycles. A growing economy consumes more (and therefore transports more), a contracting economy consumes less.
Last month, we mentioned in passing – that there was anecdotal evidence that the transport sector of the index was weakening. Hard data over the last 30 days has been entirely contradictory to this.
For a complete explanation of the EEI, please see the October 2010 forecast.