Tuesday, March 29, 2011

Gross Domestic Product v. Gross Domestic Purchases

According to David J. Merkel of The Aleph Blog, Things are not as good as they look.

"In 4Q 2010 real GDP rose 3.1%, while real Gross Domestic Purchases fell 0.2%. Why? Energy and other import costs rose which depressed the price indexes for GDP versus Gross Domestic Purchases.

"Over the long haul, the two series are close to equal, but when they diverge, they tell a story. The current story is that average consumers in the US are doing badly, while those benefiting from high corporate profits, and increasing exports are doing well."


Crake said...

What do you think about this: http://investmentwatchblog.com/karl-denniger-nobody-went-to-jail-and-as-a-consequence-the-behavior-that-is-at-the-root-of-the-problems-we-face-has-not-changed/

Crake said...

Excerpt from that link:

And then there’s this…

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — decreased 0.2 percent in the fourth quarter, in contrast to an increase of 4.2 percent in the third.

I don’t like that at all.

Profits before tax with inventory valuation adjustment is the best available measure of industry profits because estimates of the capital consumption adjustment by industry do not exist. This measure reflects depreciation-accounting practices used for federal income tax returns and is affected by the bonus depreciation provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (see below). According to this measure, domestic profits of financial corporations increased and profits of nonfinancial corporations decreased. The decrease in nonfinancial corporations reflected decreases in all industries shown, except for small increases in some detailed manufacturing industries. The largest decrease was in wholesale trade.

Crake said...

If Gross Domestic Purchase is GDP with net exports taken out and it is less than GDP doesn't that mean that net exports are positive? I thought they were negative (more imports than exports.)

Tom Hickey said...

Trade balance is still in deficit although exports are increasing. But the US is not set to become a net exporter anytime soon.

Profits of large US corps are increasingly from external ops, using foreign workers.

Productivity gains are not being shared with US workers.

With exports increasing, more US workers are working for foreign consumption/investment instead of US consumption/investment.

This is not increasing US employment or incomes, so it is not helping domestic demand as much as the raw GDP number may suggest.

Corps, banks, and equities holders doing well, workers not so much. So we are seeing a small improvement in effective demand in the US, but not enough to bring down unemployment much.

Add "business as usual" to that and the crisis is still in full swing since the top of the town knows it has nothing to fear from the law and it also has the guarantee of government bailout for mistakes.

This is not an encouraging direction.