Below is our chart of the growth components of the advance Q4 GDP report, which came out earlier this week. The way to understand these different bars is that each represents a component of the GDP identity as measured by the U.S. government, and the height of each bar represents its contribution to the total growth figure. So, for example, if GDP declined by an annualized rate of 2 percent, and consumption's decline was responsible for half of that decline, the consumption bar would measure 1 percent.
My analysis: investment is decomposed into residential and non-residential. Both are just over 2 percent in the negative, which is driving both a short-run downward trend in GDP but also a long-run pullback from capacity of aggregate supply. Worse news is that the positive contribution of imports means that the global recession side of things is bound to worsen. If you haven't seen what is happening to Japan, for example, it is beyond description. This leads me to believe the drop-off in exports will continue.
The U.S. will have to lead the world out of the global recession. That's not a suggestion, it is a predicition. It is how this will all play out.
While I would love to see our political leaders take the pork out of the current stimulus package and really represent the people of this nation...I have to wonder if China is going to be the leader in pushing past this economic crisis. The markets were reacting to China's stimulus package yesterday in the areas where they are going to need imports...
Posted by: Michelle | February 06, 2009 at 08:31 AM
Michelle,
I wonder the same thing. China is a wild card -- very fragile in many ways, but still booming in others. My hunch is that the nation will have as severe a recession as anyone, but the potential for growth is just too strong to keep their economy in the red (as it were) for long.
Posted by: Tim Kane | February 06, 2009 at 02:53 PM