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Atle Willems, CFA
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Atle Willems, CFA, is an equity investor with a long-term view investing in undervalued listed shares with solid operational track records and sensible balance sheets. He holds a master's degree in finance from Nottingham University Business School, a bachelor's degree in business... More
My company:
Liabridge
My blog:
EcPoFi - Economics, Politics, Finance
  • GDP For Q3-12: The U.S. Remains A Consumer Spending Nation 0 comments
    Oct 30, 2012 9:34 AM

    As previously reported, nominal GDP in the U.S. increased by 4.0%, or USD 612.50 billion, in Q3 2012 compared to Q3 2011. A closer look at this USD 612.50 billion YoY growth reveals it was generated as follows:

    • Personal Consumption Expenditure: USD 380.70 billion / 62.2% of YoY GDP growth
    • Gross Private Domestic Investment: USD 194.80 billion / 31.8% of YoY GDP growth
    • Government Consumption Expenditure & Gross Investment: USD 24.00 billion / 3.9% of YoY GDP growth
    • Net Exports: USD 13.00 billion / 2.1% of YoY GDP growth

    The Q3 2012 GDP figures also show, compared to the average since 1980, that Personal Consumption Expenditure and Government Consumption Expenditures & Gross Investment make up a larger share of GDP than average while the opposite is true for Gross Private Domestic Investment and Net Exports. It is evident from the current figures (compared to longer term averages) that Personal Consumption Expenditure is making up an ever larger percentage of GDP while Gross Private Domestic Investment share of GDP during the last six years or so has fallen. Government Consumption Expenditures & Gross Investment share of GDP has remained fairly steady around 20% (increased during the financial crisis), but remains significantly higher than it was during most of the 1990s and early 2000s. The U.S. has also been a net importer (negative net exporter) since about 1976, but the figures have improved somewhat since 2005/2006. As of Q3 2012 the negative net exports figures reduced GDP by 3.4% points.

    In summary, the Q3 2012 GDP figures demonstrate that the U.S. remains a consumer spending nation supplied by imports. As long as this remains the case there can be no real improvement in the U.S. economy and in unemployment rates. What the U.S. economy needs is more Gross Private Domestic Investment, more production (see here and here), a substantial improvement in net exports and more savings (see here). And of course, less government spending. Finally, remember that GDP by itself is not a good measure of how an economy is performing as a government can simply increase government spending to improve it (here's an example). There is a reason why businesses measure performance in profits and returns and not in sales + expenses.

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    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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