Real Gross Domestic Product

Real Gross Domestic Product

America’s Real GDP has been volatile since 2008 global economic crisis. As a result, it is increasingly becoming hard to make exact predictions of economy’s quarterly performance.  Bureau of Economic Analysis’ frequent revisions of economic projections is a testament to the growing unease and concern by investors given the tumultuous nature of the stock markets. From the 2015 second quarter’s real GDP performance, there is a sense of optimism in its growth and the year’s overall performance. Critics of US economic performance projects a drastic drop in the third quarter and even worse during the fourth. The basis of their claims is China’s slowing growth and the past seasonal history, where most firms often go into hibernation, thus hurting the economy.

Trends

From BEA release, there are mixed growth trends for the period highlighted. What is more evident is that most economic gains made in a particular quarter are weighed down by poor performance in the other. For instance, 2014’s first-quarter GDP performance was negative, but good performance in subsequent quarters restored the growth prospects. Fourth and first quarters have a history of slow real GDP performance because of the dull seasons.

Most Significant Growth

Real GDP’s most significant growth happened in the second quarter of 2014. The growth was an ironic rebound considering the worst growth in the first quarter of the same year. The growth was attributable to positive contributions of exports, consumption expenditures, private inventory investments and local government spending. Other factors that contributed to the soaring real GDP included residential and nonresidential fixed investments.

Least Amount of Growth

2014’s first quarter experienced the least amount of real GDP. The economy shrunk by 2.1% (Bureau of Economic Analysis, 2015) hence neutralizing the gains made in the previous quarter. Bad weather conditions contributed significantly to this sharp decline because it disrupted production, shipments and construction. It also deterred auto and home sales. Besides, there were slips in major stock indices during this period thus contributing to the worst real GDP contraction since 2008’s global economic crisis.

Overall annual real GDP projections

The growth in US real GDP for the year are promising. It is likely that the economy will be on positive territories in the remaining quarters. However, the approaching winter may gloom the fourth quarter performance. In addition, worries of economic growth in BRICK states may dampen the performance for the rest of the year. Notably, the global oil prices have dropped drastically, hence raising the rate of consumer spending. This may spur economic growth should fuel prices continue to drop (Kilian et al, 2013). Therefore, it is possible for the US to attain an annual real GDP growth of 2.4% though the economic situation is fluid. 

Primary Cause

China is a strongest trading partner to the United States. In fact, most US exports are shipped to China on a daily basis. The more than 1 billion citizens demands global products at a growing rate. China’s middle class, for instance, make huge spending on quality products from America and the developed Western world.  In the past few months, China initiated reforms that saw its economy grow at a sluggish rate. Besides, China’s Communist Party is conducting a major crackdown on corrupt state officials. One of the measures used to determine the extravagant behavior on state officials is the spending on luxury products. As a result, Chinese spenders are afraid to acquire overseas prestigious goods. This affects the United States exports hence the real GDP growth.

References

Bureau of Economic Analysis (2015) GDP Increases in the Second Quarter. Retrieved from:https://www.bea.gov/newsreleases/national/gdp/gdphighlights.pdf

Kilian, Lutz, and Robert J. Vigfusson. "Do oil prices help forecast us real gdp? the role of nonlinearities and asymmetries." Journal of Business & Economic Statistics 31.1 (2013): 78-93.