The American Consumer Is Keeping the Economy Alive

Personal consumption spending was the best thing about today's so-so GDP update.

Mar 27, 2014 at 12:22PM

A month later, and America's GDP figures don't look quite so bad. The Bureau of Economic Analysis this morning released its third and final update for fourth-quarter U.S. gross domestic producing, bumping the country's annualized GDP growth rate up to 2.6% from the 2.4% reported last month. That's well below the previous quarter's 4.1% growth rate, but it's above the average GDP growth rate of 2.2% seen over the past three years. It's not great, but it's not terrible.

Major indices reacted with some disappointment, as the Dow Jones Industrial Average (DJINDICES:^DJI) dropped quickly into the red after the opening bell, only to rebound on stronger initial jobless claims -- the 311,000 new claims recorded last week was the best figure in four months. Economists had expected the BEA to boost its GDP estimate to 2.7%, but a large downward revision in private domestic investment (from 4.5% to 2.5%) -- primarily affected by reduced spending on nonresidential structures (from 7.3% to 5.7%) -- offset a revised rise in personal consumption spending from 2.6% to 3.3%.

Let's look at the various gears and cogs of America's GDP now:

Gdpq
Source: U.S. Bureau of Labor Statistics.

As you can see, government spending continues to drag on GDP growth, but personal consumption spending outpaced the erratic swings in private domestic investment (structures and durable equipment) for only the third time since 2011. These switches only tend to occur when investments dip significantly. Drops are more likely to happen when businesses tighten their belts on construction, but this past quarter, lower spending on residences worked hand in hand with reduced business construction spending to push overall investments down:

Investmentsq
Source: U.S. Bureau of Labor Statistics.

This chart shows that growth of investment in residential structures is weaker than it's been since late 2010. This has been blamed on a bad winter, but keep in mind that the worst of this weather has largely taken place in 2014, so we might be in for another lousy quarter on this front. Nonresidential structure investment growth also tends to bottom out in the first quarter -- the two big dips on the chart above that took place following a return to growth were the first quarters of 2011 and 2013.

However, personal consumption was an important part of this quarterly upgrade. Key to that boost was a growth in U.S. services spending, which grew at its fastest rate in nearly a decade. You'd have to go back to 2005 to find a higher growth rate in services-related spending than the 3.5% recorded in the fourth quarter. This rise offsets a weakening in durable-goods spending, which is notoriously erratic:

Consumptionq
Source: U.S. Bureau of Labor Statistics.

Government spending at all levels continues to drag on the economy, but there is one sign of improvement, as the overall figure was revised from a decline of 5.6% to a slightly smaller decline of 5.2%. This change was almost exclusively due to state and local governments, which had their spending growth rate revised from a 0.5% decline to breakeven, making this the third consecutive quarter now without a decline in state and local government spending:

Govspendq

Source: U.S. Bureau of Labor Statistics.

Finally, let's take a look at how all of these major components actually contributed to GDP this quarter (and in prior quarters):

Gdpcomponentsq
Source: U.S. Bureau of Labor Statistics.

Personal consumption continues to be a major driver of the U.S. economy, and it was more important than it's been in years during the fourth quarter. It shouldn't be surprising that some of the Dow's most consumer-dependent components -- particularly Coca-Cola (NYSE:KO), Wal-Mart (NYSE:WMT), Nike (NYSE:NKE), and McDonald's (NYSE:MCD) -- are among the index's best performers today, as they rely on Americans in large part for their continued profitability and growth.

America's plan to take the crown back from China
For the first time since the early days of this country, we're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3D printing. Although this sounds like something out of a science fiction novel, the success of 3D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.

Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.

The Motley Fool recommends Coca-Cola, McDonald's, and Nike. The Motley Fool owns shares of Coca-Cola, McDonald's, and Nike and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers