Some important dynamics from US Q4 GDP Update

A weak frame:

image

Personal consumption expenditure is the most important component of US GDP and growth in real Personal Consumption Expenditure (PCE) is tied to the productive capacity of the economy.  So why on a real per capita basis has the economy failed to produce sustained increases in consumption capacity post the early 1980s?  And note that this is despite an increase in PCE as a % of GDP over the post war period. 

And also on a nominal basis:

image

How reliant in fact has GDP been on the PCE component? Growth in PCE has eclipsed both GDP and equipment investment over the post war period, and significantly so.   The question begging to be asked is,”where is growth going to come from?”

image

In another recent blog I exposited about asset valuations relative to GDP growth.  Now the charts above show the increasing reliance of US GDP on PCE, a component which appears to have outsized importance in GDP terms.  Well the following shows even PCE growth being dwarfed by increases in household asset values:

image

In fact we can see that PCE expenditures have been less reliant on income growth post 2000s:

image

And looking at nominal GDP only, if we adjust for inventories and the impact of changes in consumer credit we find a much subdued trend in growth:

image

And nominal growth in expenditures have been declining:

image

And motor vehicles etc continue to be an important part of consumer expenditure…

image

And relative to the prior debt fuelled cycle we find that expenditure on MVPs and RV combined is a much greater…I have pointed out concerns with respect to the growth in non revolving consumer credit relative to income growth, a ratio which stands at historically high levels.

image

Services expenditure has been increasingly volatile:

image

And note the importance of health care expenditure:

image

Interestingly if we take out healthcare expenditure from PCE, PCE as a % of GDP has been more more stable..

image

And financial services expenditure has also picked up since Q1 2013:

image

Interestingly, all the domestic investment components (on a nominal basis) are turning down in a synchronised way:

image

Exports have been an important driver of growth recently, but more recently has fallen back as a nominal driver of expenditure: there are many explanations for this amongst them the recent decline in the oil price and weakening global demand growth.

image

And of course the chart raises the question, where is the growth going to come from?

Finally, a quick peek at growth in commercial bank deposits relative to nominal GDP growth:

image

Leave a Reply