by Calculated Risk on 1/30/2009 01:22:00 PM
Friday, January 30, 2009
The rebalancing of the U.S. economy is ongoing. The savings rate is rising, consumption is falling, and the trade deficit is declining ...
Click on graph for larger image in new window.
The first graph shows Personal Consumption Expenditures (PCE) as a percent of GDP. Note: the graph doesn't start at zero to better show the change.
PCE as a percent of GDP declined to 69.6% in Q4, the lowest level since Q2 2001.
Some analysts think the U.S. will return to the days of Ozzie and Harriet with PCE as a percent of GDP in the low 60s, but I think a decline to around 68% is more likely.
Net exports as a percent of GDP has declined sharply to 3.7% of GDP. This is the smallest deficit since the end of the '01 recession.
Since GDP = C + I + G + (X − M), the decline in C is being offset by the improvement in net trade (X - M).
As we all know, I (investment) is declining and some components of investment (like non-residential investment in structures) will decline sharply in 2009. G (government) will increase with the Obama stimulus package, and the goal is to increase G until Investment bottoms out. We will see, but the rebalancing of the U.S. economy that we discussed several years ago is now happening.
C = Personal Consumption expenditures.
I = Gross private domestic investment.
G = Government consumption expenditures and gross investment.
X = exports
M = imports.