Another Look at 3Q 2008 GDP

Crawling through the web, I came across a visual analysis of the third quarter 2008 Gross Domestic Product (GDP) posted at the American Institute of Economic Research website. 

click to enlarge images

What is interesting is the behavior of the elements of GDP in past recessions:

• Consumption (consumer spending on goods and services) has risen as a percent of GDP in past recessions – it is not rising at this time.

• Investment falls during past recessions – it is trending down now, and has been trending down since 2001.

There has been an upward trend of imports since the early 1970’s, and an obvious acceleration of growth of imports since 2002. Since 2002, exports have also increased in approximately the same ratios (all attributed to the free trade agreements). However, analysis of the import data suggests the import percentage could have been much worse except for the fall in the price of oil according to Bloomberg.  If oil is removed from imports, the gap between exports and imports actually increased.  The current strong dollar favors an increase in imports and a decrease in exports. Widening of the import/export ratio will negatively impact 2008 4Q GDP.

There is a negative indicator for the export GDP component looking into the fourth quarter. A quick check of USA West Coast ports export container counts (TEU), shows a 3% to 6% fall in September and October 2008 year-over-year after being up over the previous months. This leads me to speculate that the export GDP component will fall in the same 3% to 6% range for the fourth quarter. Ocean transportation shipping volumes historically have been a good indicator of economic health.

Disclosure: none

Comments

[Lok Sang Ho:]

The strength of the US dollar is eroding American competitiveness at a time when foreign demand is ebbing. When weakness in the external sector combines with weakness in domestic demand, the prospect is for a dramatic decline in US GDP in the fourth quarter. I have not the slightest doubt about it.

There is imperative to prevent the US dollar from gaining further strength. However, I do want to see the US dollar weaken against the yen, whose strength is threatening the health of Japan's export sector and the wider economy too. US and Japan are the world's biggest two economies. Their demise will have serious repercussions throughout the world.

2008 Nov 16 08:23 AM

[BlueOkie:]

One of our biggest exports is foodstuff. How much do we give away in aid. How much do we burn in our vehicles?

2008 Nov 16 08:25 AM

[gotnochips:]

Very hard to argue with such a concise, bottom-line presentation.

2008 Nov 16 08:52 AM

[gordon:]

The last GDP report showed, again, the US is the largest ARMS DEALER in the world, with a jump by 38% in DEFENSE, primarily weapons aircraft/hardware/secu... etc.
If you take that out of our exports, what number do you have? Anyone?

2008 Nov 16 11:41 AM