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Thursday, November 28, 2019

The latest US GDP growth is not reflecting the actual economic situation.

https://sg.finance.yahoo.com/news/us-economy-grew-faster-q3-213420576.html

The US Q3 GDP growth at 2.1% is not reflecting the actual economic growth as compared to the PMI numbers.

https://sg-stock.blogspot.com/2019/11/the-us-pmi-is-still-contracting-in.html


Let me illustrate how the headline number can fool you by looking at the example below.

GDP = G + I + C + (X-M)
GDP = 1 + 1 + 1 + (1-1)
= 3

Then, the actual economic conditions deteriorate with Consumption decreasing by 20% and M(imports) decreasing by 50% while the rest are stagnant.

GDP = 1 + 1 + 0.8 + (1-0.5)
= 3.3

The GDP has increased by 10% from 3 to 3.3 when the consumption and imports are falling because of economic deterioration. Thus, the headline GDP number is not reflecting the actual economic situation.

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