While last week GDP growth came in better than expected at 3.5%, which was a very welcome development, there was very little change in the coverall shape of GDP. This is a troubling development for the long term. GDP is the sum of spending by the Consumer, Private Investment, Government Spending and Net Exports. The Graph below shows the percentage each of them has contributed to overall GDP since 1947. The Consumer is still by far the dominate force in the economy, and it is becoming more so. In the 3Q, PCE, meaning the consumer, rose to 70.98% of GDP, up from 70.66% in the second quarter. That is an all-time record high. At the same time, private investment was virtually unchanged near an all-time low as a share of GDP at 11.04%, up from 11.03% in the 2Q. Government spending as a share of GDP ...

Not all components of GDP are created equal. Some are very big, and others relatively small. Some tend to be very stable over time, and some tend to swing violently from quarter to quarter. The bigger and more volatile they are, the more they will impact the overall growth rate of GDP. Thus looking at just the percentage changes in the components does not tell the full story. Of the 3.5% total growth, how many points were added or subtracted by each part of the economy? The biggest part of the economy is the Consumer, or PCE -- overall it contributed 2.36 of the 3.50 points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the Consumer the economy would ...

Senior strategist Dirk van Dijk, CFA has issued notes on this morning's GDP numbers. These notes will be published in two separate blogs -- Growth Rates and Contributions to Growth. The recession is over! In the third quarter, GDP grew by 3.5%, comfortably ahead of expectations for 3.0% growth. This is a huge improvement over the 0.7% decline in the second quarter and the 6.4% plunge in the first quarter. The internals of the report were strong as well, although it appears that much of the growth came from things like the "Cash for Clunkers" (C4C) program and the extraordinary levels of support that are currently being given to the housing sector. I will first go over the percentage growth rates for the main components of GDP, and then how much each part contributed (or subtracted from the 3.5% growth rate). This is probably the ...

GDP Q3 - Advance show GDP expanded by 3.5%, better than the expected 3.2% expansion by analysts, ending a 4-quarter streak of consecutive contraction of GDP.  In the 2nd quarter, GPD  contracted by 0.7%, after contracting by 6.4% in the first quarter of 2009.  The increase in real GDP in the third quarter primarily reflected improvements in personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Initial Claims decreased by 1,000 to 530,000 claims for the week ending 10/25, worse than the expected decrease to 524,000, following a level of 531,000 from the previous week.  The 4-week moving average was 526,250, a decrease of 6,000 from the previous week’s moving average.  Seasonally adjusted insured unemployment from the prior week, ending on 10/17, was 5,960,750, a decrease of 78,750 from

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Whoever would have thought that some people once called economics the most dismal of sciences? Certainly, as the current crisis goes on and on, those of us who consider ourselves to be economists scarcely are able to find the time to squeeze in a dull moment, even here and there. But even at a broader level, interest in that most dismal of dismal topics - the theory and practice of central banking - seems now to fire up levels of enthusiasm here in Spain that make even the appetising prospect of a forthcoming Real Madrid-Barça football match pale in intensity. Even if it is the case, I have to admit, that the everyday Johnny (or Jill) come lately sitting in the bar still - truth be told - prefers the sports columns of the daily newspapers, or the lacivious details of the latest romantic adventure of one of the rich ...

In August, personal income rose by $19.3 billion, or 0.2%, and disposable personal income (or DPI, essentially after-tax income) rose by $15.5 billion, or 0.1%. The increase in personal income is essentially the same as we saw in July, and in line with consensus expectations. DPI was actually down very slightly in July, so even the 0.1% increase is an improvement. Even though inflation is low, DPI is not keeping up with it. In real terms, DPI is down for three months in a row, having fallen 0.2% in August, 0.1% in July and plunging 1.6% in June. Income from wages and salaries rose by $8.5 billion in August -- almost the same as the $8.6 billion increase in July -- however there was a big difference by sector. Service sector wages soared by $14.0 billion in August, a big increase from the $7.9 billion addition in July. Goods ...

In August, personal income rose by $19.3 billion, or 0.2%, and disposable personal income (or DPI, essentially after-tax income) rose by $15.5 billion, or 0.1%. The increase in personal income is essentially the same as we saw in July, and in line with consensus expectations. DPI was actually down very slightly in July, so even the 0.1% increase is an improvement. Even though inflation is low, DPI is not keeping up with it. In real terms, DPI is down for three months in a row, having fallen 0.2% in August, 0.1% in July and plunging 1.6% in June. Income from wages and salaries rose by $8.5 billion in August -- almost the same as the $8.6 billion increase in July -- however there was a big difference by sector. Service sector wages soared by $14.0 billion in August, a big increase from the $7.9 billion addition in July. Goods ...

GDP Q2 - Final show GDP contracted by 0.7%, expected to decline further to a 1.1% contraction from the 1% decline data from the August Q2 preliminary estimate, following a 1% estimated contraction in the advance Q2 estimate (today’s preliminary release is based on a more complete set of data), after contracting by 6.4% in the first quarter of 2009, and by 6.3% in the 4th quarter of 2008.  Today’s release demonstrates the rate of contraction of GDP has slowed down considerably in the recent quarter, indicating a bottoming out of the recession.  The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, personal consumption expenditures (PCE), and exports, which were partly offset by positive contributions from federal government spending and state and local government spending, although smaller decreases in these categories allowed for

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The new semester has begun, and I was reviewing economic trends in my macro courses. In my lectures, I highlighted the sharp drop-off in consumption. In the following, I discuss how well my predictions for consumption from last November have held up.

First, a recap of events:

Figure 1: Real consumption year-on-year growth (blue) and real GDP year-on-year growth (red), calculated as 4 quarter log differences. NBER defined recession dates shaded gray. Source: BEA, GDP 2009Q2 second release, NBER, and author's calculations.

Figure 1 shows how the year-on-year growth in consumption has hit very low rates, lower than at any period in the past forty years. So too has GDP growth (where now are all those people who were denying the depth of the recession, e.g. [0]?).

In Figure 2, I show individual component year-on-year growth rates. (Durables, nondurables and services are 10%, 21.8%, and 68.1%

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In July, personal income was essentially unchanged (up by $3.8 billion, or less than 0.1%). If one subtracts out taxes to get disposable personal income (DPI), it was also essentially unchanged -- except it was a decline of $4.6 billion, but that is also less than 0.1%. On the other hand, consumer spending, or personal consumption expenditures (PCE), increased by $25.0 billion or 0.2%. Well what happens if income is flat and spending rises?  The savings rate falls. In July, the savings rate dipped to 4.2% from 4.5% in June and from 6.0% in May. The rise in spending appeared to mostly be tied to the Cash for Clunkers program. Since it was only in effect for the last week of July, and for most of August, I would not be surprised to see spending rise again in August. I'm not sure about the direction of DPI....