Post by unlawflcombatnt on Apr 30, 2006 1:37:11 GMT -6
Friday's GDP report was again touted as evidence of a "strong" economy. Further examination, however, shows less reason for optimism. Much of this "growth" has been deficit financed. In fact, the fraction of consumer spending financed with borrowed money is steadily increasing.
Friday's GDP report shows an increase in Personal Income (defined as National Income minus Corporate Profits) of $480 billion from the end of the 1st quarter of 2005 through the end of the 1st quarter 2006. Disposable Personal Income increased $472 (Personal Income minus Taxes.) These numbers are in non-inflation adjusted current dollars.
From the 1st quarter 2005 through the end of the 1st quarter 2006, personal consumption expenditures increased $571 billion. (Again, this is in current dollars, not inflation-adjusted dollars.) Thus personal consumption increased $98 billion more than income. {Without this borrowed-money spending, the direct subtraction from today's GDP growth of 4.8% would leave an annualized increase of only 4.0%.}
The 1st quarter 2006 change in wage-financed consumer spending vs. total consumer spending is even more striking. Though current dollar consumer spending increased $166.9 billion, disposable personal income increased only $132.2 billion. Personal consumption expenditures increased $34.7 billion more than disposable income. Thus income-financed consumer spending increased only $134.7 billion. If this is subtracted directly from the 1st quarter GDP increase of $254.8 billion in current dollars, it reduces quarterly the GDP increase to $220 billion. This leaves a current dollar GDP growth of 1.72% for the 1st quarter alone, or an annualized rate of 6.9%. Subtracting the GDP price deflator of 3.3% leaves a real, income-financed GDP growth rate of only 3.6% for the 1st quarter. Again, this is only from direct subtraction of the deficit-financed component of consumer spending. Using a multiplier would reduce the number even further.
The above calculation measures the GDP growth rate during the 1st quarter only. (Also, the $ amounts shown are in current dollars, not inflation-adjusted dollars. The 12-month real (or chained 2000 dollars) GDP increased from $11 trillion in the 1st quarter of 2005 to $11.381 trillion in the 1st quarter 2006. This is a 12-month increase of $382 billion, or 3.47%. The increase in real personal consumption expenditures during this time was $267 billion. The increase in real disposable personal income was $184 billion over the last 12 months. Thus, $83 billion of the consumer spending increase was financed by borrowed money, not income. If this $83 billion is subtracted directly from the 12-month GDP increase of $382 billion, the increase is only $299 billion ($297 billion), or only 2.7%. Without the direct contribution of borrowed money to consumer spending, the last 12 months' GDP would have increased only 2.7%. (Again, this does not take into account any multiplier effects, which would reduce the number even further.)
Below is a copy of parts of the GDP report from the BEA
This information can be found at BEA-GDP Report
The percent of our GDP that is being created by borrowed money is steadily increasing. Savings rates continue to decline. The current quarter savings rate is now -0.5%. GDP growth cannot continue to increase from debt-financed spending. This is especially true given an anticipated decline in home equity loan financed consumer spending. This source of spending is anticipated to decline at least $120 billion this year, and maybe much more. With real wages continuing to decline, so will our economy.
Weekly real wages have declined for 3 straight years. Meanwhile, consumer spending has continued to increase. The difference has been financed by ever increasing levels of debt. Once again, this is not a sustainable trend. The correction may be much sooner than we think. The dollar is sinking rapidly in value, having declined approximately 5% in the last 2 months alone. This decline will eventually cause a shift in foreign holdings of dollars, as well as U.S. debt. This will cause the collapse of the current "borrowing bubble." When that happens, consumer spending will decline. So will our economy. We need to "change the course." And we need to change it soon.
Friday's GDP report shows an increase in Personal Income (defined as National Income minus Corporate Profits) of $480 billion from the end of the 1st quarter of 2005 through the end of the 1st quarter 2006. Disposable Personal Income increased $472 (Personal Income minus Taxes.) These numbers are in non-inflation adjusted current dollars.
From the 1st quarter 2005 through the end of the 1st quarter 2006, personal consumption expenditures increased $571 billion. (Again, this is in current dollars, not inflation-adjusted dollars.) Thus personal consumption increased $98 billion more than income. {Without this borrowed-money spending, the direct subtraction from today's GDP growth of 4.8% would leave an annualized increase of only 4.0%.}
The 1st quarter 2006 change in wage-financed consumer spending vs. total consumer spending is even more striking. Though current dollar consumer spending increased $166.9 billion, disposable personal income increased only $132.2 billion. Personal consumption expenditures increased $34.7 billion more than disposable income. Thus income-financed consumer spending increased only $134.7 billion. If this is subtracted directly from the 1st quarter GDP increase of $254.8 billion in current dollars, it reduces quarterly the GDP increase to $220 billion. This leaves a current dollar GDP growth of 1.72% for the 1st quarter alone, or an annualized rate of 6.9%. Subtracting the GDP price deflator of 3.3% leaves a real, income-financed GDP growth rate of only 3.6% for the 1st quarter. Again, this is only from direct subtraction of the deficit-financed component of consumer spending. Using a multiplier would reduce the number even further.
The above calculation measures the GDP growth rate during the 1st quarter only. (Also, the $ amounts shown are in current dollars, not inflation-adjusted dollars. The 12-month real (or chained 2000 dollars) GDP increased from $11 trillion in the 1st quarter of 2005 to $11.381 trillion in the 1st quarter 2006. This is a 12-month increase of $382 billion, or 3.47%. The increase in real personal consumption expenditures during this time was $267 billion. The increase in real disposable personal income was $184 billion over the last 12 months. Thus, $83 billion of the consumer spending increase was financed by borrowed money, not income. If this $83 billion is subtracted directly from the 12-month GDP increase of $382 billion, the increase is only $299 billion ($297 billion), or only 2.7%. Without the direct contribution of borrowed money to consumer spending, the last 12 months' GDP would have increased only 2.7%. (Again, this does not take into account any multiplier effects, which would reduce the number even further.)
Below is a copy of parts of the GDP report from the BEA
This information can be found at BEA-GDP Report
The percent of our GDP that is being created by borrowed money is steadily increasing. Savings rates continue to decline. The current quarter savings rate is now -0.5%. GDP growth cannot continue to increase from debt-financed spending. This is especially true given an anticipated decline in home equity loan financed consumer spending. This source of spending is anticipated to decline at least $120 billion this year, and maybe much more. With real wages continuing to decline, so will our economy.
Weekly real wages have declined for 3 straight years. Meanwhile, consumer spending has continued to increase. The difference has been financed by ever increasing levels of debt. Once again, this is not a sustainable trend. The correction may be much sooner than we think. The dollar is sinking rapidly in value, having declined approximately 5% in the last 2 months alone. This decline will eventually cause a shift in foreign holdings of dollars, as well as U.S. debt. This will cause the collapse of the current "borrowing bubble." When that happens, consumer spending will decline. So will our economy. We need to "change the course." And we need to change it soon.