Glance at US Economy Part II – US GDP: Double Face?!
Gross domestic Product is the most commonly used indicator for the size of economy. A country with a large GDP will have a greater amount of goods and services, thus, reflecting a higher standard of living. But GDP does not always reflect the population majority`s Quality of life. Several Historical records witnessed distribution a large portion of nation wealth in the hands of minors whiles the majority a high income. This is not the case for the US, but the US does have diverse standard of living in its 52 states. Before zooming into the US GDP, we must first differentiate between Current Dollar GDP and Real GDP which is adjusting for the changes in inflation. Now let’s have a historical view at both US GDPs across the past 5 years:
In the Year 2022, the Current Dollar GDP was 25.46 Trillion USD, while the Real GDP was 21.806 USD. As per shown in the above chart, the difference between current dollar and real is getting bigger every year. A shocking 3.65 Trillion dollar difference reflects the effect of inflation and the increase in prices. Thus, the real GDP is the accurate measure of economic growth. Let’s have another historical comparison on the growth rate of GDP across the years for US vs. China:
As we can see, both economies were really shaken by the first Covid-19 Outbreak. The US even recorded a historically negative growth rate in Y2020. But both did well to recover greatly in the year 2021 achieving great comeback. We should highlight that China did suffer COVID-19 Outbreaks and some riots in 2022 which is why the growth rate is 5% below estimated. Nevertheless, the chart also shows the great gap in economic development between the US & China. China is averaging a 5.88% economic growth annually across 8 years while the US is averaging 2.12% annual growth. This is one of the reasons the US has started the trade war with China and the risk of conflict over Taiwan.
Moving on to the next phase, the GDP composition, the US GDP is composed of 4 primary expenditures; personal consumption, private domestic investments, government consumption & investment, and finally the net exports of goods & services. The net exports are the same as the trade balance, which is the balance between the total monetary values of exports subtracted by the total monetary value of imports. For countries where imports exceed exports, the net exports of goods & services is negative value. The Personal Consumption Expenditure is composed of either goods & services.
Now these are the streams of the gross domestic product, I kind of tell a lot. For instance, the US Citizens are averaging a very good quality of life considering their population exceeding 338 million. Why are we saying that? Simply because a shocking 42% of the total GDP is generated from services and it might have been more than that. A large service to GDP share is reflection of first class economy, high standard of living and a sign of nontangible highly valuable assets in this economy. The US is in the top 5 leading countries in technology industry. So, How much did each segment contribute to the 2.1% of Real GDP Growth?
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It is evident that 2022`s Growth was due to the increase in services consumer spending, exports, private inventory investment and federal spending. Personal Consumption Services accounted to 45% of total US GDP Y2022. The US Bureau of Economic Analysis has highlighted that the private sector highly invest and develop the telecommunication market compared to other markets while the year 2022 witness decrease in construction sector on all levels. The Current Dollar GDP per Capita is 75K USD, a very high income GDP per capita worldwide. Our analysis solidified that the US economy is a highly services oriented one with great focus on technology. But despite the normative analysis, a non-productive economy is never a healthy economy. The US might become a trillion Dollars deficit country in year 2023, and that is a disaster. The US economy might be forced to lower its currency if the rift gets bigger year after year. So, after a deeper view in the US GDP, do you think it is solid enough? Is the US Economy doing better or worse? Is it the Stairway to Heaven of the Highway to Hell?!
Stay put for the upcoming edition of the US Economy Series
US Economy Part III – US Consumer Price Index CPI
References:
The Bureau of Economic Analysis
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