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.
Note:
C = Personal Consumption expenditures.
I = Gross private domestic investment.
G = Government consumption expenditures and gross investment.
X = exports
M = imports.