Most traders are probably sitting on the edge of their seats in anticipation for the release of the US advanced GDP report on Thursday. But before we get down to the nitty-gritty, you might be wondering “Why all the fuss about the US GDP?”
Well, since the GDP measures the total market value of goods and services produced in an economy, it is considered an indicator of a country’s overall economic activity. This indicator is also used to gauge whether the country has fallen into a recession or not. Two or more consecutive quarters of negative GDP qualifies for a technical recession – which is the current predicament of the US economy.
The US economy has posted negative economic growth for the past four quarters, with a tremendous 6.1% contraction in the first quarter of 2009. This time around, analysts are optimistic that the US will finally climb out of the rut and record 3.1% GDP growth. If the actual figure meets the consensus, it would mark its strongest increase in almost two years, indicating that an economic recovery is now underway.
But don’t pop the champagne just yet. Let’s get our gloves on, dig a little deeper, and check out whether the underlying figures support a 3.1% GDP growth…
Lately, we’ve been seeing signs from different sectors of the economy suggesting that things have indeed improved. Business confidence has improved, with both the manufacturing and service PMI reports now hovering above 50.0, indicating that businesses are expanding.
The housing industry also appears to have picked up as existing home sales rose in the past few months. The current annualized rate of existing home sales now stands at 5.57 million this September, after it landed at 4.89 million in July. In addition, new home sales have also picked up, with the annualized figure increasing from 384,000 in June to 429,000 in August.
Most importantly of all, consumer spending, which composes 70% of the county’s GDP, has perked up. If you were able to read my write-up on the “Cash for Clunkers” program, you would’ve seen that core retail sales picked up this past month by 0.5% even when retail sales dropped. This means that while consumers aren’t spending as much on big ticket items like cars, they are still spending on other basic goods and services.
Now that the manufacturing, service, and housing industries all show signs of improvement and consumers are actually opening their wallets a little more, could it be farfetched to think that the US economy actually grew during the 3rd quarter? Or was this expansion merely a result of the massive stimulus being injected by the US government? With government stimulus coming to an end soon, could we be in for some disappointing news next quarter?