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- The economy popped out nicely in the second quarter. The measurement of everything Americans produced increased by 4.2 percent. Such a growth rate, if it can be sustained, means measurably higher future income and about 3 million net new jobs a year.
- Looking at the subcomponents, consumer spending rose by 2.5 percent, while business spending increased by 8 percent. Exports rose 10 percent but that gain was more than wiped away by the 11 percent gain in imports. Federal government spending fell slightly from the residuals of sequestrations. Spending by state and local governments rose modestly.
- Due to a recovery in housing starts, home sales, and remodeling spending, the housing sector now comprises $2.71 trillion out of the total GDP of $17.3 trillion. Specifically, spending for Housing and Utilities amounted to $2.16 trillion and Residential Investment totaled $550 billion. That is, the housing market now comprises 16 percent of GDP.
- The long-term historical GDP growth rate is 3 percent each year. Even though the latest quarterly data of 4 percent growth is highly welcoming, it is in the aftermath of a decline in the first quarter. GDP growth has not been consistent. In fact, GDP growth has been subpar, growing under historical normal 3 percent on an annual basis for the past nine consecutive years.
- The forecast is for 1.8 percent GDP growth in all of 2014. It then rises to 2.5 to 3 percent next year. That will translate into about 5 million net new jobs cumulatively over the next two years. Jobs will be ever more important to offset the impact of what appears to be a rising interest rate environment going into 2015.
- GDP growth determines nations’ economic muscular power. In recent times, among the wealthy countries (excluding China), English speaking countries have fared better. Canada, Australia, and Singapore have consistently expanded nicely. Britain and Ireland have also outpaced the rest of Europe.
- Speaking of English-speaking countries: one of the greatest military upsets in history was that of the American colonials defeating the mighty redcoats from Britain. The win might not have occurred without French help at Yorktown. At the peace treaty a Frenchman predicted the likelihood of America becoming the greatest economic power in future. A bitter British diplomat shot back quickly: “Yes sir! And they will all speak English.”
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