Tomorrow, the BEA will release its revised second quarter GDP numbers. Consensus has that number at 1.6%, same as the prior release. But we here at MetalMiner pay close attention to the Consumer Metric’s Institute Daily Growth Index. The chart below depicts growth (or lack thereof) based upon certain aspects of consumer spending:
Source: Consumer Metrics Institute
Following the curve, it should not come as a surprise that growth could turn negative, perhaps just before this year’s elections. But we won’t repeat previous posts on this subject. Instead, we’ll spend a few minutes examining something that Rick Davis, Founder of the Consumer Metrics Institute called out in a recent newsletter. Quite simply, Rick reminded us what comprises GDP:
GDP = private consumption + gross investment + government spending + (exports Ã¢Ë†’ imports)
Or in algebraic shorthand: GDP = C + I + G + (X-M)
The Consumer Metrics Institute follows all of these measures but its data comes from “upstream purchases of durable goods, or the “C in the above equation that comprises approximately 70% of total GDP. In the name of full disclosure, the Consumer Metrics Institute only tracks a portion of C. Nevertheless, we find the data of particular interest because it certainly tracks a large portion of GDP and the data leads as opposed to lags other publicly available data.
But what we will look at today involves “X-M or rather the impact of trade on GDP. And though it might appear tempting to shout hooray since the data appears “less bad than before, when imports exceed exports, we subtract from overall GDP growth.
Said differently, the equation, according to the latest available GDP data reads like this:
GDP = $10.001b + $1.589b + $2.914b + (.153b-.196b) = $14.119b
From a Pareto analysis perspective, one might conclude that the “X-M portion of the equation appears only negligible but indeed the net deficit improved GDP by $7b, or 5%. As we like to say around here, that’s better than a stick in the eye. This improvement, by the way, came from the export of goods as opposed to services. But with the consumer continuing to de-leverage and political pressure to curb G (government spending) the trade deficit becomes a more important lever in our overall economy.
For this reason, (and not protectionism) issues like currency valuation, a quintupling of exports and trade cases have become critical areas to examine.