Economy

Economic growth unexpectedly declined in the decade of the 2000s and slow growth has continued into the 2010s.  Initially, it may have been a normal cyclical variation, yet it is increasingly appearing to portend a future of slower economic growth. Economic growth and the inflation rate have significant implications for future long-term stock market returns. New postings and updates will be noted in the Recent Additions section of this website. The terms of use for all materials are detailed in the About section.

Economic Growth

Economy-Recoveries

Worst Recovery Since…Ever? 

It has been said repeatedly that the current sluggish economy is the result of the recent “worst recession since the Great Depression.” It’s probably time to reassess the medicine, rather than continue to blame the illness.

This chart does not advocate a particular economic policy, rather it provides contrasts of historical experience. The rate of economic growth can have a significant effect on stock market valuation, the market P/E, and future returns: See Game Changer

Updated
Through 2013

charts: GDP - Real Economic Growth - by decade

GDP – Real Economic Growth 

Economic output, as measured by real gross domestic product, reflects the amount of goods and services produced by labor and capital in an economy.  The change from period to period, excluding the effects of inflation, measures the real economic growth occurring within the economy.  Economic growth has been relatively consistent over many decades in the U.S., as a result of fairly constant population growth and generally consistent productivity gains (at least in the longer-run).  During the 1930s, economic growth stalled; it then subsequently recovered its long-term average growth rate through an above-average decade in the 1940s.  Real GDP in the decade of the 2000s was significantly below average.  It is as yet unclear whether the economy downshifted to a new level of slower growth, or whether pent-up economic production will drive a high-growth decade in the 2010s or beyond that again restores the long-term average.

Updated
Through 2013

charts & analysis: GDP Productivity by Decade

GDP & Economic Productivity 

Economic growth, as measured by GDP, is driven by two components: population growth and labor productivity.  Labor productivity reflects the capacity for increased output from the existing quantity of labor in the economy.  Various government agencies and independent analysts produce measures of labor productivity.  For high-level analysis of the second component of economic growth, a productivity measure using overall economic production provides the most comprehensive and consistent measurement of economic productivity.

Updated
Through 2013

chart & analysis: Economy Population by Decade

GDP & Population Growth 

Economic growth, as measured by GDP, is driven by two components: population growth and labor productivity.  Population growth represents a surrogate measure of the quantity of labor in the economy.  Although there are numerous measures that are more refined (e.g., labor force participation, total employment, etc.), over time total population growth has provided a reasonable estimate for high-level analysis of the first component of economic growth.

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General Economy

Updated
Through 2013

chart: Nominal GDP - 10-Year Rolling Components

GDP – Nominal: 10-Year Rolling Components 

Nominal GDP consists of real GDP plus inflation.  This chart presents the two components of nominal GDP for all 10-year periods since 1900.  The 10-year periods smooth some of the variability of economic growth and the inflation rate to display the contributions of each component over longer periods.  Of particular note, the loss of real economic growth during the 1930s was made up in subsequent decades thereby restoring the long-term trend of fairly stable real economic growth over time.

Updated
Through 2013

chart: Nominal GDP and Earnings Per Share

GDP – Nominal & EPS 

Nominal GDP and earnings per share (EPS) have a close and fundamental relationship.  Nominal GDP is driven by the economic cycle, with real GDP providing core growth and the inflation rate adding a degree of variability over time.  Earnings growth is driven by the business cycle, which revolves around the economic cycle with swings that have greater magnitude and frequency.  The primary driver for the core baseline of earnings over time is nominal economic growth (yet GDP does not consistently drive EPS in the short-run).

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