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Gross domestic product expanded at a rate of 3.7 percent
during the July to September time frame. Even though the mark was lower than
what some had forecasted, the rate of expansion was very respectable. The
expansion in GDP is important because it measures the dollar value of all
final goods and services produced by the nation. Moreover, with a few
accounting adjustments, it represents the amount of national income generated
by our country. Thus, it is a very important measure of economic
performance. For the record, real GDP for the United States expanded by 3.9
percent from third quarter 2003 to third quarter 2004, and now stands at $10.9
trillion.
GDP, while a very useful and important measure, is not the
only measure of how an economy is performing. Employment of course is an
extremely important gauge of activity. Job generation in September was around
139,000 positions. This number was lower than the consensus forecast of
150,000 jobs. Further, the August job figure was about 130,000. The
employment numbers are always subject to revision. It is not at all uncommon
for there to be some rather large adjustments to the numbers once additional
data are made available. For example, the period from April 2003 to March
2004 saw the employment numbers revised upwards by about 250,000 jobs. The
very latest job report shows that fourth quarter 2004 has gotten off to a
great start. Preliminary estimates indicate that U.S. employers added 337,000
net jobs in October. This figure is well above estimates and bodes well for
the nation. To place matters in perspective, it takes about 150,000 net new
jobs per month to keep pace with the nations expanding population and labor
force. The unemployment rate can therefore only remain constant if it
generates about 150,000 jobs per month, or failing that have a large number of
discouraged workers drop out of the labor force. This of course does not
touch upon the issue of the quality of jobs being created. That discussion is
well beyond the scope of this short piece.
Another measure of economic performance is price level
stability. Over the third quarter to third quarter time frame, the Consumer
Price Index rose by an estimated 2.5 percent. More recently consumer prices
rose by 0.2 percent in September. Thus, it appears that this overall measure
of inflation is manageable. However, there are areas of concern. Energy
prices have taken a bite out of consumer wallets. Political events in Iraq,
Nigeria, and Venezuela have raised concerns about supply of oil and its
price. Further, the hurricanes that hit the Gulf coast area did some damage
to offshore capabilities. Moreover, the rapidly growing world economy is
hitting the demand side of the market. The good news is that the U.S. economy
is much less oil dependant than it was in the 1970s. Some estimate that due
to increased energy efficiency, and the growth of the less energy intensive
services sector, the impact of oil prices is about half of what it was in the
1970s. Some analysts suggest that oil would have to rise to the $75 to $100 a
barrel range before the country would be pushed into recession.
Looking to the future, our central bank,
the Federal Reserve, believes that the economy will continue to expand at a
moderate pace for the next several quarters; consumer sentiment, while
declining, remains at a decent level; retail sales growth continues to be on a
modest upward track; inflation remains contained; and business investment
shows signs of picking up. In sum, it appears that the economy will continue
to expand the amount of goods and services at a decent pace. Lastly, the
economy will generate new jobs at a somewhat faster pace than it did during
the past several years. |
