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GDP & the Economy

unlawflcombatnt

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Today's final 4th quarter 2005 GDP report came in showing a 1.7% annualized growth rate for the quarter. Though this decline is concerning, the actual breakdown of contributions is even more concerning. The total increase in GDP during the 4th quarter was only $46 billion in chained 2000 dollars. (i.e., it was adjusted for inflation using the government-controlled BEA's own secret formula.)

Normally, consumer spending is 2/3rds of economic activity. This was not the case in the 4th quarter, however. In fact, personal consumption expenditures accounted for only $17.5 billion of that growth, or only 38%. The biggest contribution came from capital investment (overinvestment?) The total gross private domestic investment was $72.5 billion, or over 4 times as much as consumer spending. Of this investment, $51.2 billion is accounted for as increase in private inventories. In other words, $51.2 billion of the contribution to that $46 billion came from unsold goods (surplus.) With a GDP growth as low as it was, and an increase in unsold goods greater than the GDP increase, there are no signs that this is an economy that is "strong, and getting stronger." Producing 4 times more goods than Americans can purchase is a recipe for disaster. Since American consumers account for 80-90% of the purchase of American goods, this is especially concerning.

To complete the picture, the subtractions from the total GDP should be mentioned. Our 4th quarter trade balance was -$37.7 billion. Government spending declined $4-6 billion. (I'm giving a range, since the published numbers don't add up perfectly.)

Below is a modified copy of a chart showing this information from the U.S. Bureau of Economic Analysis:



The above chart can be found in its entire (unreadable) form at: BEA-GDP

Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course.

unlawflcombatnt

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The economy needs balance between the "means of production" & "means of consumption."
 

Stinger

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Well I just don't see a downward trend in there, I think you overeact.

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2003 2004 2005r I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04 III 04 IV 04 I 05 II 05 III 05 IV 05r
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Gross domestic product (GDP). 2.7 4.2 3.5 2.7 2.2 2.4 .2 1.7 3.7 7.2 3.6 4.3 3.5 4.0 3.3 3.8 3.3 4.1 1.7
 
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that makes it sounds like last christmas wasn't quite as merry as the one before....:shrug: I wonder, who do you think is going to win American Idol?

Unlawflcombatnt, how much more do you think we need to cut taxes for the rich/business interests to increasing consumer spending and reduce the portion of the GDP caught up in captial investments: a little, some, alot, or a whole shitload?
I know people have been saying that median (or was it average? :shrug: wasn't paying much attention anyway) income has been kinda stagnant recently and that consumer debt has been going up; how much should our elected officials care about these trends: little or not at all?
 
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