|
Real GDP
Growth
| |
2Q10 - Adv. |
2Q10 - Pre. |
2Q10 - Fin. |
 |
| MOST RECENT STATISTIC: |
2.4% |
1.6% |
|
| Grade: |
D+ |
| PERIOD COVERED: |
2Q2010 |
| Date Released: |
08/27/10 |
|
|
|
| Next Release: |
09/30/10 |
|
|
|
|
| Annualized
Change |
|
|
2Q2010 |
1Q2010 |
4Q2009 |
2Q2009 |
2Q2008 |
|
|
| Annualized
% Change |
1.6% |
3.7% |
5.0% |
(0.7%) |
0.6% |
|
| Implicit
Price Deflator |
2.0% |
1.1% |
(0.3%) |
0.3% |
3.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
Change in GDP Components |
| |
2Q2010 |
|
|
|
|
|
| Consumer
Spending |
2.0% |
|
|
|
|
| Business
Spending |
25.0% |
|
|
|
|
| Government
Spending |
4.3% |
|
|
|
|
| Exports |
9.1% |
|
|
|
|
| Imports |
32.4% |
|
|
|
|
|
| Source:
Bureau of Economic Analysis |
|
Analysis for the Housing Market
By:Ken Lee
Preliminary estimates for second quarter gross domestic product showed the economy expanding slower than advance estimates had suggested. The U.S. economy grew 1.6% during the second quarter which is weaker than the 2.4% pace in the advance report. Estimates for economic growth in the second half and 2011 continue to be revised downward which exhibits the weakening state of the current economy. However, this still marks the fourth straight quarter that the U.S. economy has expanded and further solidifies the notion that the recession is over. Downward revisions in business spending along with a drop in export activity and an increase in import activity resulted in slower growth.
Gross private domestic investments increased 25.0% compared to 28.8% growth in the advance second quarter report. Residential investments surged in the second quarter, jumping 27.2% due to lower interest rates. Non-residential business investments increased 17.6% which was stronger than the advance figure of 17.0% growth. Government spending increased 4.3% which is a slight downward revision from the 4.4% increase in the advance report. Consumer spending increased 2.0% which is better than the 1.6% growth in the advance second quarter report. Exports increased 9.1% in the preliminary report compared to a 14.1% increase in the previous release while imports, which take away from growth, increased 32.4% compared to a 28.8% gain in the advance second quarter report.
The preliminary figure for the second quarter GDP price deflator showed a 2.0% increase which higher than the 1.8% increase in the previous estimate. The price deflator is a metrics used to gauge inflationary price pressures.
*A comprehensive revision took place in the advance second quarter release for the time period from 2007 through first quarter 2009.
Definitions and Importance for the Housing Market
By:Jonas Adams
The best measure of the economy's health is the real growth rate (growth in excess of inflation) of the Gross Domestic Product (GDP). A recession is considered to be a period when GDP growth is negative for two consecutive quarters. The country's Real Gross Domestic Product is the sum of the output of goods and services that are located in the United States. GDP is a measure of total spending in three categories (consumer spending, business spending, and government purchases), and is adjusted for net exports. Net exports is negative because the United States imports far more than it exports. Consumption (consumer spending) is the most import component and comprises approximately 68 percent of GDP.
The annual real GDP growth rate is determined by measuring the quarterly growth rate, and assuming that rate continues for a full year. Preliminary estimates are released one month and two months after quarter end, and the final revision is released almost three months after quarter end.
The rate of GDP growth is very important to the housing market, not only because it measures the strength of the economy, but also because the variance from what is considered to be the long-term achievable growth rate influences Federal Reserve policy, which directly affects mortgage rates. When the economy is fully employed (generally considered to be when the unemployment rate is around 5.0%, real GDP growth of 2.5% has traditionally been considered to be the long-term achievable growth rate. This range is determined by adding the historical population growth of 1.0% and the historical productivity improvement of 1.5%. Recent technological advancements, however, have led to significant improved productivity, which in turn has led Federal Reserve Chairman Greenspan and others to conclude that 3.0% to 3.5% may be the new long-term sustainable growth rate.
The Federal Reserve controls the discount rate (the rate at which banks borrow from the Fed) and the Fed Funds rate (the rate at which banks borrow from each other). These rates have a "trickle down" effect on economic growth (GDP) because higher bank costs lead to higher borrowing costs for consumers and companies, which in turn slows spending. Additionally, a trickle down effect occurs on mortgage rates because banks must raise mortgage rates to cover their costs. Higher mortgage rates eventually dampen housing demand, which eventually reduces economic growth.
When the economy is growing faster than the Fed deems to be sustainable, the Federal Reserve is inclined to raise interest rates to slow the rate of growth and prevent inflation from accelerating. A quickly growing economy can lead to rapidly rising wages and salaries, which increases the cost of goods and, therefore, leads to inflation. An inflationary environment is not good for the economy due to reasons that are far too comprehensive to discuss here.
For more information on GDP go to:
http://www.bea.doc.gov/bea/dn1.htm
© 2005 Hanley Wood LLC. |
