Wednesday, 30 January 2013

GDP (Q4-12) release: Credit-Fueled U.S. Consumer Spending Continues

The U.S. Department of Commerce today released the GDP numbers and its components as of Q4 2012. And if there is one thing the numbers show it is that the U.S. is now, more than ever before, a consumer spending nation. For those that advocate increasing consumer spending to drive (short term) economic growth, the figures were good news as consumer spending now makes up more than 71% of GDP and represented the 20th quarter in a row with consumer spending making up more than 70% of GDP. This has never happened before in the history of the U.S. economy based on data going back to Q1 1947.

At USD 11.2491 trillion for the quarter (seasonally adjusted annual rate), consumer spending reached the highest level ever reported for an individual quarter, growing 3.3% compared to Q4 2011.

Unfortunately, this expansion in consumer spending is unsustainable as it is fueled by an expansion in credit and a low personal savings rate, i.e. just more of the same that wreaked havoc with the U.S. economy in the past and leading up to the 2008 financial crisis.

To make matters worse, a big chunk of the items consumed and financed through a low savings rate and credit were bought, as has become customary in the U.S., from abroad.

Lastly, U.S. government spending remains close to record levels...

...while gross private domestic investment remains lower than it was some 4.5 years ago.

In short, the above is not a recipe for a sustainable and prosperous economy. In fact, it is exactly the opposite.

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