The Latest on GDP

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses GDP.

• The economy continues to expand, albeit at a slow rate.  The second quarter GDP – the value of everything America produced - increased 2.5 percent.  That growth is sufficient to create 2 to 2.5 million net new jobs this year.  More jobs are clearly good for the real estate market, particularly now to help mitigate the negative impact of rising mortgage rates.
• Ideally, several consecutive quarters of above 3 percent growth is needed to say that the economy is truly gearing up for better times ahead.  It has been seven consecutive years of sub-par economic performance to date.
• Housing was a big contributor to the economy in the latest data.  Residential construction expanded by a healthy 13 percent.  Moreover,  key consumer spending rose by 1.8 percent.  Since wage growth has been minimal, the increased consumer activity is likely due to the rise in housing wealth.  When people feel wealthier, they spend more.  Let’s hope the policymakers do not screw up the recovery by making mortgages even more difficult to obtain or by chipping away at mortgage interest deduction, as is being discussed in Washington.
• Business spending activity remains subdued with only 2.9 percent gain.  Generally, this component should be rising at a double-digit pace after a recession.  Companies are evidently still very hesitant to spend even after having rebuilt up their cash flow situation.  A sharp increase in business spending will lead to much better economic times ahead.
• GDP is the best measure of strength of a country and of future living standards.  America today is the undisputed leader in the world.  Countries that have been pro-America like Colombia, South Korea, and Czech Republic tend to do well economically over time.  In countries that take anti-American stance like Venezuela, North Korea, and Belarus, people suffer economically. Being pro-America does not mean a love of everything America has done in the past.  Rather being pro-America means the country’s belief in the rights to life, liberty, and the pursuit of happiness of all its citizens - the factors that make a country grow rich and what Martin Luther King rightly promoted.  Simply, to paraphrase Winston Churchill’s remark about democracy being the worst form of government, we may say that America has been the worst possible country except for all others.