Money

10 things to know about the latest U.S. GDP report

By Yasufumi Saito

The December quarter GDP, gross domestic product, released by the Commerce Department recently shows that the U.S. economy slackened a bit, but continued a healthy recovery step by step. It’s worth dissecting.

A mixed layer of economic activities such as imports, government spending and most importantly, personal consumption resulted in the outcome. Let’s take a look at those points.

1. The growth slowed somewhat.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

The U.S. economy continued to grow in the fourth quarter, but the GDP increase slowed to a 2.6 percent annualized rate from 5 percent in the third quarter.

2. But it’s still robust, especially when looking back more than 10 years.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

Average growth over the past 10 years is 1.61 percent. Comparing with other periods, annualized 2.6 percent is robust enough.

3. Trade balance and defense expenditure cause the drag.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

GDP is calculated as the total amount of four sectors: Personal consumption, private business investment, government spending and trade balance. National defense expenditures sharply fell, and the trade imbalance was exacerbated due to expanded imports.

4. The U.S bought more durable goods, computers and even oil by using the strong dollar.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

When examining a breakdown of imports, which is a subtraction in the calculation of GDP, it is clear that people and business spent more money to buy computer stuff, durable goods and oil. Some enjoyed more travel.

5. And the U.S. sold less high-value-added product like cars or computers.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

A breakdown of exports, which are an addition in the calculation of GDP, shows that the U.S failed to sell added-value things. On the other hand, food and agriculture goods significantly increased.

6. Where does the hope come from? It’s Personal Consumption.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

The contribution to GDP advance of personal consumption, the biggest engine of growths accounting for more than two-thirds of U.S economic activity, was 2.87 percent, up 0.66 percentage point from the prior quarter. This means that consumer spending grew and even increased in influence.

7. Well, people mostly bought clothes and gas.

(U.S. Department of Commerce, Yasufumi Saito/Medill)

Consumption in the clothing and gasoline categories rose 13.3 percent and 12.2 percent from 1.2 percent and 0.9 percent in the previous quarter, respectively.

8. People are buying more goods because they have more confidence.

(University of Michigan, Yasufumi Saito/Medill)

Looking at related data, the latest surveys show that U.S. consumer confidence and consumer sentiment surged to new highs since the recession, which means that in general people feel more comfortable about today’s economy.

9. Where does the confidence come from? It’s said to be lower unemployment and gas prices.

The unemployment rates in December was 5.6 percent and in January was 5.7 percent, the lows since June 2008. Gas prices dropped almost $2 per gallon in January, although there is a bounce in crude oil prices recently.

10. Overall, the U.S is doing better than other developed countries.

(Bloomberg, Yasufumi Saito/Medill)

When looking around the world, there are lots of slow-growth countries such as Austria (-0.1 percent), Belgium (0.9 percent), Singapore (1.5 percent) and Canada (1.9 percent), whereas the United Kingdom posted a 2.7 percent growth.

Photo at top: U.S. GDP continues to grow in 2015. (Ervins Strauhmanis/Creative Commons)