Tag Archives: GDP

Time to Increase the US GDP Numbers

31 Jul

If you follow the S&P 500, you’ll know that the companies that comprise this list are not the same as those in the 1950’s, or 1930’s, or even last year. As time marches forward, often companies that have lower and lower market caps, among other reasons, are replaced with ones that are rising in value. This has a distorting effect on S&P 500 charts over time. From a practical standpoint, you need to keep the list current to accurately reflect what the current market is like. Also it does not make sense to keep some companies on the list that are no longer viable. (an example)

Well, it appears that the way the government measures the US GDP is in for a similar, but not the same, update. Today, July 31, 2013, the changes will be announced.

    For the first time in four years, the Commerce Department will revise its estimates of U.S. gross domestic product — the value of U.S.-made goods and services — back to 1929. 

For the first time, money spent on R&D and on the Arts will be included in the GDP. It appears the international community had already accepted the changes to increase their respective GDP numbers.

    The biggest share of America’s R&D spending goes to develop new drugs

The government says the difference between that final growth estimate updated annually, and the initial GDP estimate released within a month of a quarter’s end, can be as much as 1.3 percentage points in either direction.

It will be interesting to see how the new numbers impact the national GDP, but this is probably done in an attempt to offset the downgrade in the GDP numbers posted last month. The total impact looks likely to be in the $400B range annually. That works out to be about 2.7% of the $15 Trillion GDP number for 2012.

Two Gauges of the Economy – Unemployment and S&P 500

26 Jul

Printing money by the Federal Reserve and handing it to the bankers is not going to bring economic stability to the US or the world. The single visible impact it has is the creation of a rising stock market which for a lot of people is their only gauge of how well the economy is doing. And on that measure, the S&P 500 is on a rate of return of over 28% for the year, and 34% taken from the last day of 2012.

S&P 500 (SPY)

The market historically is a precursor to the health of the economy as measured by GDP.

“….shows a clear positive correlation between equity returns and GDP over the last ten years ….”

Based on that thesis, the good times have only begun. When you take a look into one other indicator within the US economy, you have to wonder what is happening.

Unemployment

Within the confines of Keynesian economic theory, the jobs are either created by the private sector (in good times), or the public sector (bad times). The rising stock market should be signifying good times, so the unemployment should be dropping, as it is, based upon the Federal government numbers. As the public sector is reducing jobs, the newly created jobs are from the private sector, due to the “good times”. Unfortunately, the only jobs being created in the US today are low paying service sector jobs.

The median household income in America increased from 1945 to 1999, where it went from level to a peak in 2006, into a steady drop into 2013. The US has lost its ability to manufacture products worthy of export due to its lack of international competitiveness, so this trend will never end. (Dr. Paul Craig Roberts: The Failure of Laissez Faire Capitalism and Economic Dissolution of the West )

“When you lose the ability to make things, you lose the ability to invent things.”

The unemployment may be dropping by official numbers, but the purchasing power of the American worker is dropping. It is hard to see this as a driver to higher GDP numbers and a rising stock market. Perhaps there is some credence to the notion that the market is being driven up by the Federal Reserve printing presses.