Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: GDP | quarter | news | oil

Market Correction Negates 5 Percent GDP Story

By    |   Wednesday, 07 January 2015 08:23 AM EST

The stock markets have fallen by nearly 500 points in the last two days. So what?

It was just two weeks ago that the stock pundits and the mainstream media could not croon loud enough at the GDP growth that the Bureau of Economic Analysis (BEA) had announced. The BEA reported that GDP grew at an astonishing 5.0 percent annualized rate in the third quarter.

Everybody and their brother were patting each other on their back saying that finally after five long years, the U.S. economy was roaring hot again. This was the second revision to the GDP, a whole 1.1 percent higher than the first revision.

The next statement out of their ignorant mouths? The Fed will raise rates sooner than even the expected mid 2015 schedule.

Let's peel the numbers a little bit to see what is really going on here.

GDP in the second quarter was 4.6 percent, while the third quarter is now 5 percent. So the overall increase was 0.4 percent. The biggest factor that changed from the second quarter to the third quarter was Net Exports of Goods and Services, which improved by 1.12 percent in the two quarters.

How did that happen? Simple. Exports were down as the U.S. dollar soared. Less people can afford American goods. So how is that good news?

The next factor that belies the 5 percent GDP growth is the fact that 0.8 percent of the 5 percent was due to government consumption and expenditures. In the second quarter this number was only 0.3 percent. More money was spent on defense, arms and sending soldiers to Iraq and 4,000 medical professionals to Liberia. How is that great news for the U.S. economic growth story?

The GDP growth attributed to Goods (not services) actually declined from 1.3 percent in the second quarter to 1.06 percent in the third quarter. So the mainstay of how an economy grows — production of goods and therefore investment in equipment, etc. — actually declined in third quarter. How is that good news?

Finally one of the most important criteria to understand is that of Personal Consumption Expenditure (PCE). This indicates how much of the GDP is due to higher consumption by individuals like you and me. In this case, the PCE in third quarter was 2.2 percent, compared with 1.75 percent in the second quarter. That should be good news, right? Not so fast. Let's understand what the 2.2 percent consists of — 1 percent of the 2.2 percent came from Healthcare and Insurance Industry equally. That means that we spent more on healthcare and insurance . . . a lot more. To me that sound like Obamacare is working too well.

Now how about that. Government passes Obamacare, forces us to spend more on healthcare and insurance and then claims victory as the U.S. economy does exceedingly well. Again I ask, how is that good news?

If the U.S. economy was doing this well, why are the stock markets acting jittery and falling right now? The blame this time is that oil prices are trading at five-year lows.

Why is that, may I ask?

It is because the demand is stagnant to shrinking. I do concede there that the drop in oil prices is a story beyond just falling demand. For the first time in history, the U.S. has become the largest producer of oil. All the fracking and environmentally unfriendly methods of extracting oil (tar sands) has become mainstay and the U.S. is producing more oil than ever.

OPEC does not like this one bit and has decided to crush the U.S. production. The U.S. is enjoying the fact that Russia is crushed and it gets to claim moral victory. We know the low prices will not last, but the government is drawing as much political capital from this as possible while it lasts. The truth is the world is going to suffer the consequences of this drop in oil prices for long time to come.

I for one am not impressed by the 5 percent GDP growth story and hate the fact that the real malaise of the global growth story is being shadowed by sideline stories such as oil price drops.

© 2023 Newsmax Finance. All rights reserved.

The stock markets have fallen by nearly 500 points in the last two days. So what?
GDP, quarter, news, oil
Wednesday, 07 January 2015 08:23 AM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved