The chart below displays the same data set but smoothed with a 6-month moving average in order to reduce the volatility contained in the underlying data. Again, it is quite clear that despite the ongoing commentary from mainstream analysts, and economists, economic activity has clearly peaked and is on the decline. The ‘Hurricane Sandy’ effect is shown by the recent uptick in the data but the sustainability of that bounce is highly in question.”
This past Friday we saw the 1st estimate of 1st quarter GDP for 2013. If viewed only the headline of 2.5% growth you might be inclined to say: “Geez…that’s pretty good considering the 4th quarter of 2012 was only 0.4%.” However, while that is the way that the media interprets economic data releases – the reality is that once you look at the underlying data another picture entirely emerges.
The calculation of GDP is broken down into 4 major categories:
- Personal Consumption
- Private Investment By Businesses
- Government Spending
- Net Exports (Imports – Exports)
The actual formula for economic geeks is:
Y = C + P + G + (X-M)
The chart on the next page shows the net change, in billions of dollars, for the major components of GDP and the primary subcomponents. As you can see the two big drivers for the 1st quarter were personal consumption expenditures (PCE) and gross private domestic investment (PDI).
On closer inspection you see that the two primary drivers of PCE and PDI
were services and a buildup in inventories.
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