Put Your GDP Where Your Mouth Is

Fan of the president- not a fan of the president. Doesn't matter. But there are certain things we Americans cannot deny.

Like the fact our economy is thriving.

Whether or not you think President Trump is responsible for this is beside the point. I think it is vital to understand what is going on fiscally in our country as social issues tend to take over the headlines and the state of our country can seem a bit, well, depressing.

Fiscal stories are what some, well, maybe lots would deem boring. Here is brief (hopefully not confusing) synopsis of how the American economy is doing:

Today, Gross Domestic Product (GDP) numbers were released for the 2nd quarter of 2018. GDP is released for each of the 4 quarters of the year (similar to companies- although corporations fiscal years may not begin in January.)

1st quarter = January 1st -March 30th. 2nd quarter = April 1st - June 30th...you get the idea.

GDP is detailed in Barneys, Bergdorfs & Bill$, but basically it is the best way to measure a country's economy. It is the total value of everything produced by all the people and companies in the country- if they are located within a country's boundaries, the government counts that production into GDP.

Gross Domestic Product = Personal Consumption Expenditures (how much Americans spend on goods) + Business Investment + Government Spending + (Exports - Imports)- - hang in there, this gets simpler.

Nominal vs. Real GDP: real values are adjusted for inflation, nominal values are not- with this, nominal GDP values will appears higher.

Inflation: the rate at which the general level of prices for goods and services are rising. When inflation rises, the power of your currency (our dollar)- falls.

Don't let the words confuse you- it may seem complicated but the principle is simple.

Understand inflation is why people invest their money. They invest to make a return. While it may seem more safe to stash your cash in your bank account- due to inflation, your money is devaluing. The goal is "price stability." Not too much inflation, not too little.

So what did today's report say and what does that say about our economy?

First half of 2018 results:

• GDP grew at a rate of 4.1% in Q2. That is the 2nd best pace for a second quarter result since 2014 (that would be President Obama era- republican or democrat, you cannot deny numbers!)
  • The main causes: increase in consumer spending & business investment. Increases in the latter can be attributed to the fact we have an environment not vilifying business. There have been significant rollbacks in financial compliance laws that were an immense burden to companies in both a time and monetary sense.
    • White House Budget Director, Mick Mulvaney said, as discussed above, deregulation has likely had the most impact as companies feel comfortable committing capital.
  • Tax cuts. The tax cuts for individuals and corporations are without a doubt an influence of the increase in consumer spending and business investment.
  • Overall, we have a very business friendly environment in America currently and these numbers reflect that fact.
• Estimates from Q1 readings were revised up from 2% to 2.2%. Basically, more information can trickle in over time to give a better picture of quarters past.
  • Above is a chart showing GDP results from the past 6 quarters.

What else?

• Back to our calculation of GDP, government spending and an increase in exports led to the rise in GDP.
  
  • Government spending- investments in our infrastructure, road, railways, sewer systems.
    
  • Exports- the goods we produce in the U.S. and sell to countries abroad. It is ideal when exports outweigh imports (we are selling more than we are buying.)
    
    • A caveat to this is the China soybean industry. There will be tariffs imposed in the coming weeks, therefore this was an attempt to get this done before.
      

Tariffs. You have no doubt heard the conversation revolving around tariffs, most notably, the battle with China.

So what's the skinny and how does this factor into our economy?

• Tariffs on foreign goods and retaliatory tariffs by other countries actually help the cause. It may seem counterintuitive, but foreign buyers bought more U.S. goods before tariffs kicked in (back to the increase in exports this quarter.) This led to higher revenue and in turn, higher GDP.
  
• Sometimes companies will stockpile goods when they know tariffs are coming. You might question- well, won't this just all revert once the tariffs are imposed? Maybe- we still don't know what the tariff picture will look like yet.

In a nutshell:

• Fastest pace for a Q2 GDP rise since 2014 to 4.1%.
• Record consumer spending, some question if this is sustainable.
• Business investment exceptionally high due to tax cuts and deregulation.
  • Federal government revenue significantly declined because of said tax cuts. While this benefits individuals and corporations, the downside is our deficit is ballooning. The U.S. debt clock sits at $21 trillion.
    
• Government spending on the rise with infrastructure.
  
  • Same issue as above- we are taking in less (federal tax revenue) but still spending the same. It would be like losing your job yet still spending the same amount of money as when you were employed.
    
• Large amount of exports due to impending tariffs.
• Inflation is tepid but potentially rising depending on tariffs.
  
• Unemployment claims dropped to 208,00 during the week of July 14- the lowest reading since December of 1969.
  • While unemployment is at historical lows, wage rates are not keeping up.
    

And as you can see above, not everything is hunky dory but overall, fiscally, things are going well.

It is easy to be consumed by the "gloom and doom" on newspaper headlines and mainstream news.

These stories sell, and don't get me wrong, obviously not everything in this country is going swimmingly, but these figures released today are something Americans should be proud of.

You can credit whomever you like with these successes. I tend to agree with the idea that if things are going well, Presidents may get too much praise. If things are going poorly, Presidents may obtain too much flack.

A lot of what goes on is not necessarily a direct result of their actions but a combination of many elements and potentially have been years in the making.

The soon to be retiring CEO of Goldman Sachs, Lloyd Blankfein, said this at the World Economic Forum in Davos, Switzerland this past January and I think he nailed it:

I like a lot more stuff than I don't. The stuff I don't like is not as substantive. Some of it is, and some of it is social aspects. I've said this, but I don't want to be hypocritical either.

I've really liked what he (President Trump) has done for the economy and I think he's gone out of his way to be very, very supportive of the system.

Frankly, I want to honor that.

We are America.

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