Economy Watch: How Does the US Economy Compare to Other Nations?

A look at the U.S. gross domestic product.

By Dees Stribling, Contributing Editor

Gross domestic product might seem like too much of a 30,000-foot number to care about, and in some ways it is. On the other hand, it’s a convenient shorthand for the overall health of the economy. No one was surprised, for instance, when GDP contracted rapidly for a time in the late 2000s, or expanded quarter after quarter in the prosperous 1990s, since that’s what the metric does. In more recent times, it’s been a mirror of the sometimes strong, sometimes weak post-recession growth: an often frustrating time when just as the economy seems to be headed toward the open blue skies of sustained growth, it stumbles. The final GDP for each quarter tracks that in real time. No business decision hinges on it, but no one should forget about it either.

Real GDP—which the Bureau of Economic Analysis defines as the value of the production of goods and services in the United States, adjusted for price changes—increased at an annualized rate of 2.3 percent in the second quarter of 2015, according to the BEA on Thursday. That wasn’t as much as expected; the consensus among economists was 2.9 percent. But it still represented a strong uptick from the first quarter, when real GDP increased only 0.6 percent (and in fact, the Q1 numbers were revised from a contraction of 0.2 percent). It also needs to be noted that the Q2 number counts as preliminary, since as more data comes in, the bureau is going to refine its estimate. So growth could easily come in at 2.9 percent when all is said and done, since estimates are often revised upward.

In short, the economy’s chugging along at a fair-to-middling pace, at least by historic standards. Compared to the rest of the developed world, however, the United States is doing pretty well. The increase in real GDP in Q2 was because of positive contributions from personal consumption expenditures (PCE—people spending their money), exports, state and local government spending, and residential fixed investment (much of that home buying). Indeed, real PCE increased 2.9 percent in the second quarter, compared with an increase of 1.8 percent in Q1. But there were some drags on overall GDP as well, such as that federal government spending—still shrinking, especially as a percentage of GDP—private inventory investment (businesses spending their money), and nonresidential fixed investment, some of which is commercial real estate activity. Imports, which are a subtraction in the calculation of GDP, increased.

Some important aspects of the GDP report for real estate-minded observers are the contributions by residential investment and nonresidential structures. Residential investment increased at a 6.6 percent annualized rate in Q2; it includes new single-family structures, multifamily structures, home improvement, broker’s commissions and a few smaller categories. Investment in non-residential structures, on the other hand, decreased at an annualized 1.6 percent. These too are overall numbers. Early in August, the BEA will release more detailed data about residential and non-residential contribution to GDP. But the pattern for now is residential growth, and a sideways movement for non-residential investment.

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