The US economy is leading the way

Back in 2008, the USA plunged the world in one of it’s most violent financial crisis. Everything started with the subprime crisis. The real alarm signal was in 2008 when the Lehman Brothers Institution declared bankruptcy. No institution was too big to fail. That’s when the government stepped in: in September 2008, the Federal Reserve gave AIG Insurance an emergency loan of $85 billion in exchange of a 79.9% equity stake in AIG. Then General Motors Company was temporarily nationalized before pulling off one one the biggest IPOs in history. In November 2008, the government purchased $27 billion of preferred stock in Citigroup, a US bank with over $2 trillion in assets. In order to fight the crisis, the US government implemented very agressive fiscal and monetary policies, such as quantitative easing. It allowed the banks to keep low yields and thus to finance themselves in order to stimulate the economy. Today, thanks to these extremely rigorous measures, the US economy is outperforming every other economy including the so-called Emerging Markets. And while there is growth in America, the rest of the world is in or at the edge of recession.

The US leadership is clearly visible with the third quarter’s results. Growth in the third quarter is higher than expected which indicates that, in this worldwide skepticism, the US economy is strong and healthy.

The Commerce Department published the third quarter’s results on Tuesday. It had estimated that the third quarter’s growth rate would be of 3.5%, while the Wall Street Journal economists had planned 3.3%. The GDP has in reality experienced a growth of 3.9% during the third quarter of the year. We experienced a recession during the first quarter of 2014. But the second and third quarters with a growth of respectively 4.6% and 3.9% are the best six-month period of growth since 2003.

 

US GDPhttp://www.bea.gov/newsreleases/national/gdp/gdphighlights.pdf

The consumer’s spending, which was bigger than expected and the improving inventory investment counterbalanced the weaker exports of this quarter.

In the third quarter’s results we also find the first estimate of corporate profits of the quarter. The profits after tax, adjustments-free, progressed of 1.7%. In the third quarter of 2013 they increased of 3.8%. Corporate profits, calculated this way, are in accordance with the earning statements of companies. If we look at the economic output results, we see that the third quarter’s economic output has increased of 2.4% compared to the third quarter of 2013. It follows the trend of 2% growth since the end of the recession in the end of 2009.

Around the world, things aren’t looking as great as in the US. The rate growth in emerging markets such as Brazil and China are slowing, Japan just entered a new recession. Europe hardly managed to obtain a positive growth rate. Even is the US gains are modest in comparison to previous expansions, the US economy still outperforms all the other economies thanks to a higher domestic growth rate.

The US trade supplemented a 0.78% difference to overall growth last quarter. The imports, which must be subtracted from the economic growth, declined of 0.7% (previously estimated at -1.7%). The exports on the other hand, estimated at 7.8%, augmented of 4.9%.

Consumer spending increased continuously in the third quarter. Personal consumption expenses originally estimated at a progress of 1.8% were actually up 2.2%. We note a minor downtrend compared to the 2.5% increase during the second quarter. The consumer demand represents roughly two-thirds of the economic output. Expenses on new infrastructures, equipment, and research and development programs increased at a 7.1% more than expected. Similarly, spending on residential buildings and improvements was subject to a rise of 2.7%.

Government spending, such as military spending which increased of 16% in the third quarter, is also contributing to economic growth.

The government’s GDP numbers are fitted for inflation. In the report, price index for personal consumption costs, the Federal Reserve’s preferred inflation indicator rose at a 1.3% annual rate over the third quarter. If we exclude the food and energy categories, due to their volatility, the prices rose of 1.4%.

 

Marc Zaidan

 

 

Data taken from: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

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