Sunday, February 07, 2010

US GDP Fourth Quarter 2009

The U.S. GDP, measuring the output of the economy, was reported at $14.463 trillion as of January 31, 2010. In the fourth quarter of 2010 (October, November, December), the annualized growth rate was reported as 5.7 percent, in contrast to a 2.2 increase in the third quarter, and a .7% decline in the second quarter.
The categories of spending are consumption, investment, government, and exports. Consumption increased at an annual rate of 2 percent. Durable goods such as cars home furnishings declined by .9 percent after having advanced by 20.4 percent in the third quarter. Government programs such as the “cash for clunkers” that subsidized the purchase of new cars are making economic activity more turbulent, as for example people bought cars sooner, but then car purchases fell later.
But overall the purchases of both goods and services rose. The purchase of nondurable goods role by 4.3 percent, a big jump from the 1.5 percent increase in the third quarter and a negative 1.9 percent in the second quarter.
Gross private domestic investment jumped up by 39.3 percent, a huge increase over the 5 percent advance in the third quarter, and the 23.7 percent fall in the second quarter. Economic investment, an increase in capital goods, drives the business cycle. A fall in investment, especially the big fall in construction, led the GDP plunge, and investment is pulling the economy back up.
Fixed investment was up 3.5 percent, after having fallen by 1.3 percent in the third quarter. Equipment and software was up 13.3 percent, after a 1.5 percent rise in the third quarter, and negative numbers before that.
Economic investment includes inventory. Private inventories fell by $40 billion, meaning that companies are using up goods faster than they replenish them. But in the third quarter, inventories fell by $156.5 billion, so this is a big improvement, as companies restocked by $16.5 billion more.
Exports rose by 18.1 percent, with exported goods rising by 28.1 percent. Imports only rose by 10.5 percent. Government spending for goods and services actually fell by .2 percent, because state and local spending fell by .3 percent due to cutting back spending. Federal nondefense spending rose by 8.1 percent, while military spending fell by 3.5 percent.
Folks, the recession is over. The economy is still depressed, but it is no longer falling. I wrote back in April 2009 ( that the second derivative had turned positive. That means that the change in the rate of growth had gone from negative to positive: the downturn was slowing and would become an upturn. I also wrote that “The recession will most likely end in the fall of this year 2009.” And so it did.
The doom-and-gloomers were saying that the economy would plunge into another great depression, with massive business failures and unemployment. Perma-bears were forecasting that the stock market would plunge down almost to zero. That has not happened, because governments have not repeated the worst of the mistakes of the 1930s.
The US enacted a high tariff in 1930, and other countries also raised trade barriers, which brought international trade to a screeching halt. The Federal Reserve system failed to prevent a huge deflation, which raised real interest rates, halting investment.
This time around, there has been some protectionism, such as a “buy American” element of the stimulus program, but trade barriers remain relatively low. The Fed this time greatly expanded the money supply, so the deflation of 2009 was mild. It was mostly falling land values, a plunge in the stock market, price reductions for goods, some lowered wages, and most of all, low interest rates, almost zero for interbank loans.
Now the US federal government is engaged in a jobs program, seeking to reduce the unemployment of 10 percent. Government chiefs are boasting that the trillions thrown at the financial firms, the car companies, and stimulus projects prevented a bigger collapse and are pulling the economy back up.
Well, if government borrows and creates a few trillion dollars and injects it into the economy, it is going to have some effect. But it is like being pumped up with stimulus drugs. Later, the drugs damage one’s health. The price of this stimulus will be a much higher federal debt and high inflation.
It was not necessary to bail out the financial sector, and spending money just to create jobs mostly shifts jobs and caters to special interests. Folks are crying out, where is my stimulus? Banks, Fannie and Freddie, insurance firms, are taking government money, giving their chiefs big bonus payments, and using the stimulus money to pay for lobbies to get even more.
I had said that if government seeks to increase demand and rescue folks from debt, unemployment, and business failure, it could have given every person several thousand dollars in cash. That would have quickly restored the economy according to the goods that people wanted. Firms would have responded to market demands, not selective governmental favoritism. And the money would not have increased the federal debt. Now we have a greatly expanded money supply and also a bigger debt.
The economy will rise again, only to burn and crash once more. Few are learning the right lessons from the Great Recession. They are focusing on the financial firms and not on the land values they were speculating on. Only when we tap the ground rent for public revenue, and so push land values down to almost zero, will the real estate and business cycle be extinguished. Then we will have an economic Isaiah 2:4: they will beat their land speculation swords into productive plows, and nations shall not suffer depressions any more.