Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 5.7% in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.2%.
Real GDP decreased 2.4% in 2009 (that is, from the 2008 annual level to the 2009 annual level), in contrast to an increase of 0.4% in 2008. The price index for gross domestic purchases increased 0.1% in 2009, compared with an increase of 3.2% in 2008.
The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision. The “second” estimate for the fourth quarter, based on more complete data, will be released on
February 26, 2010.
Related: China GDP up 8.7% in 2009 – 2nd Quarter 2009 USA GDP down 1% – Japanese Economy Grew at 3.7% Annual Rate in 2nd Quarter 2009
The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.
The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second. Real final sales of domestic product — GDP less change in private inventories — increased 2.2% in the fourth quarter, compared with an increase of 1.5% in the third.
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Some statistics from the Kauffman Foundation
- From 1980–2005, firms less than five years old accounted for all net job growth in the United States.
- More than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies.
- Contrary to popularly held assumptions, the highest rate of entrepreneurial activity belongs to the 55–64 age group over the past decade. The 20–34 age bracket has the lowest.
- Only 16 percent of the fastest-growing and most successful companies in the United States had venture investors.
- More than a quarter of technology and engineering companies started in the United States from 1995 to 2005 had at least one key founder who was foreign-born.
- Foreign nationals residing in the United States were named as inventors or co-inventors in 25.6 percent of international patent applications filed in the U.S. in 2006.
Related: Y-Combinator’s Fresh Approach to Entrepreneurship – Entrepreneur Results – Kiva Fellows Blog: Nepalese Entrepreneur Success
China’s GDP Growth Accelerates to Fastest Since 2007
The report may stoke speculation the central bank will start raising its benchmark interest rate and tighten restrictions on the nation’s lenders. Minutes after the release, traders said the People’s Bank of China guided three-month bill yields higher at an auction for the second time in two weeks.
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Fourth-quarter economic growth was driven by an unprecedented $586 billion stimulus package, subsidies for consumer purchases and a credit-fueled investment boom. The property market has rebounded and a 13-month slump in exports ended last month.
Industrial production grew 18.5 percent in December from a year earlier and retail sales climbed 17.5 percent, the statistics bureau said today.
In 2008 China’s GDP was up 9.6%. The economy there obviously continues to do amazing things. Also there are plenty of signs of crazy spending building huge amounts of housing and office space that lies vacant and questionable infrastructure projects. There is certainly a risk of bubbles bursting in China but the long term strength of the economy seems real. The danger is first political with financial bubbles being the second risk – I think.
Related: Japanese Economy Shrinks 12.7% in the 4th Quarter of 2008 – Data on the Largest Manufacturing Countries in 2008 – Oil Consumption by Country in 2007
Find below some interesting thoughts on financial markets and the efficient market theory. That theory essentially says the market prices are right given the available information. I think markets are somewhat efficient but there are plenty of opportunities to profit from inefficiencies in the market. Still it is not easy to consistently exploit these inefficiencies profitably.
Capital Market Theory after the Efficient Market Hypothesis
Capital market theory after the efficient market hypothesis by Dimitri Vayanos and Paul Woolley
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Theory has ignored the real world complication that investors delegate virtually all their involvement in financial matters to professional intermediaries – banks, fund managers, brokers – who dominate the pricing process.
Delegation creates an agency problem. Agents have more and better information than the investors who appoint them, and the interests of the two are rarely aligned.
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he new approach offers a more convincing interpretation of the way stock prices react to earnings announcements or other news. It also shows how short-term incentives, such as annual performance fees, cause fund managers to concentrate on high-turnover, trend-following strategies that add to the distortions in markets, which are then profitably exploited by long-horizon investors. At the level of national markets and entire asset classes, it will no longer be acceptable to say that competition delivers the right price or that the market exerts self-discipline.
Related: Nicolas Darvas (investor and speculator) – Beating the Market, Suckers Game? – Lazy Portfolios Seven-year Winning Streak – Stop Picking Stocks? – Don’t miss future gains just because you missed past gains
Nominal health spending in the United States grew 4.4% in 2008, to $2.3 trillion or $7,681 per person. This was the slowest rate of growth since the Centers for Medicare & Medicaid Services started officially tracking expenditures in 1960, yet once again outpaced nominal GDP growth (2.6% in 2008). This brings health care spending to 16.2% of GDP. In 2003 the total health care spending was 15.3% of GDP.
The huge amount being spent continues to grow to an even larger percentage of GDP every year. The damage to the economy of the dysfunctional health care system in the USA is huge. For comparison the total GDP per person in China is $5,970 (the closest total country per capita GDP, to the health care spending per capita in the USA, is Thailand at $7,703 – World Bank data). The average spending by OECD countries (Europe/USA/Japan…) was $2,966 per person in 2007 (the USA was at $7,290). In 2007 Canada spent $3,895; France $3,601; UK $2,992; Japan $2,581.
- Hospital spending in 2008 grew 4.5% to $718 billion, compared to 5.9% in 2007, the slowest rate of increase since 1998.
- Physician and clinical services’ spending increased 5.0% in 2008 to $496 billion, a deceleration from 5.8% in 2007.
- Retail prescription drug spending growth also decelerated to 3.2% in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns. Drug prices increased 2.5% in 2008.
- Spending growth for both nursing home and home health services decelerated in 2008. For nursing homes, spending grew 4.6% in 2008 compared to 5.8% in 2007.
- Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5% in 2008, the same rate as in 2007.
- Health care spending by private sources of funds grew only 2.6% in 2008 compared to 5.6 percent in 2007.
- Private health insurance premiums grew 3.1% in 2008, a deceleration from 4.4% in 2007. Remember many people lost their jobs and did without insurance. Doing so results in reduced spending on health insurance but is far from a good sign.
- Home health care spending growth decelerated from 11.8% in 2007 to 9.0% in 2008. Expenditures reached $64.7 billion in 2008. You can understand why investors (and companies) are looking to invest in home health care.
At the aggregate level, the shares of financing for health services and supplies by businesses (23%), households (31%), other private sponsors (3%), and governments (42%) have remained relatively steady over time. Between 2007 and 2008; however, the federal government share increased significantly (from 23 to 25%), while the state and local government share declined (from 18 to 17%).
Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken.
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This graphic from the National Geographic shows the amazingly high cost of health care in the USA and the poor performance. Granted just life expectancy is not a good overall measure of success. But this just mirrors the general mediocre at best performance of the USA health care system.
The USA spends $7,290 per person (based on 2007 OECD data) the next highest spending country is Switzerland at $4,417. Canada spends the 4th most: $3,895. Only 5 countries have a lower life expectancy. The most any of those countries spend is $1,626. How people continue to accept arguments by the apologists for the special interests trying to defend the current system is beyond me.
The Cost of Care by Michelle Andrews
Related: USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – Employees Face Soaring Health Insurance Costs – International Health Care System Performance – USA Heath Care System Needs Reform
China has been growing incredibly quickly for years. The credit crisis slowed things down. But unlike so many other governments that spent all their resources and more in good times, China has plenty of cash and spent a great deal on large projects. That spending has boosted their economy. And with that encouragement their economy has continued to grow, including consumer spending. As I posted earlier, China May Take Car Sales Lead from USA in 2009.
China Raises GDP Growth Estimates, Narrowing Gap With Japan
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China’s expansion in 2008 compares with U.S. growth of less than 1 percent. Japan’s gross domestic product shrank 1.2 percent. The Indian economy expanded 6.7 percent in the fiscal year ended March 2009.
Economic data always has some errors within, and from China the data is even less reliable. But the overall strength seem very real and significant.
Related: Government Debt Compared to GDP 1990-2007 – Japanese Economy Grew at 3.7% Annual Rate (Aug 2009)
Why This Real Estate Bust Is Different by Mara Der Hovanesian and Dean Foust
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While the housing crisis seems to be easing, the commercial storm is still gathering strength. Between now and 2012, more than $1.4 trillion worth of commercial real estate loans will come due…
The USA commercial real estate market, by many account, is going to continue to have trouble. I would like to add to my commercial real estate holdings in my retirement account, because I have so little (and other options are not that great), but with the current prospects I am not ready to move. I would not be surprised if the market comes back sooner than people expect: it seems like it is far too fashionable to have bearish feelings about the market. However, it doesn’t seem like the risk reward trade-off is worth it yet.
Related: Commercial Real Estate Market Still Slumping – Victim of Real Estate Bust: Your Pension – Nearly 10% of Mortgages Delinquent or in Foreclosure (Dec 2008) – Urban Planning
America Must ‘Reassert Stability and Leadership’
Volcker: I remember there were people, beggars and tramps as we called them, who wanted to be fed. So it’s true, today we also have people who are relying on food stamps and other payments but we are a long way from the Great Depression. We are in a serious, great recession. Today we have 10 percent unemployment, but at that time it was more like 20 or 25 percent. That’s a big difference. You had mass unemployment.
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SPIEGEL: Are you sure? The Wall Street businesses are doing well. The big bonuses are back.
Volcker: It’s amazing how quickly some people want to forget about the trouble and go back to business as usual. We face a real challenge in dealing with that feeling that the crisis is over. The need for reform is obviously not over. It’s hard to deny that we need some forward looking financial reform.
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SPIEGEL: But the American government seems to have lost some eagerness in setting a tougher regime of rules and regulations to control Wall Street. Everything is being watered down. Why?
Volcker: I will do the best I can to fight any tendency to water it down. What we need is broad international consensus to make things happen.
I am surprised how many people are trying to compare the economic situation today (often using unemployment rates) and say we are in nearly as bad a situation as the great depression. The economy is certainly struggling, great recession, is a good term for it, I think. But taking the high measures of unemployment and underemployment today and comparing it to unemployment in the 1930’s is not comparing like numbers. The employment situation is bad now. It was much worse in the great depression. As intended, support systems like unemployment pay, FDIC, food stamps… have worked to reduce the depth of the recession.
He is right that we need serious reform to the deregulation that allowed the credit crisis to explode the economy.
Related: Volcker: Economic Decline Faster Now Than Any Time He Remembers – The Economy is in Serious Trouble (Nov 2008) – Unemployment Rate Reached 10.2% – Canada’s Sound Regulation Resulted in a Sound Banking System Even During the Credit Crisis
Mortgage defaults hit an all-time high in July according to RealtyTrac (the data in this post is from their survey). Last month default notices nationwide were down 8% from the previous month but still up 22% from November 2008, scheduled foreclosure auctions were down 12% from the previous month but still up 32% from November 2008, and bank repossessions were flat from the previous month and down 2% from November 2008. The housing market is currently not getting worse but it is hardly improving rapidly.
“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” said James J. Saccacio, chief executive officer of RealtyTrac.
Four states account for 52% of national foreclosures for the second month in a row: California, Florida, Illinois and Michigan.
Related: Mortgage Delinquencies Continue to Climb – Over Half of 2008 Foreclosures From Just 35 Counties – Nearly 10% of Mortgages Delinquent or in Foreclosure