Green is not only the color of St. Patrick's Day, it is the color of money. Coincidence? No. It will take more than luck for you to understand what GDP represents and how to talk about this with your clients. Fortunately (pun intended), we have the information you need about GDP so you don't have to rely on luck.
What is GDP and what does it represent?
Gross domestic product (GDP) is generally considered the best indicator of the economy’s health as a whole. It’s often referred to as the “temperature of the economy.” GDP is critical information for investors in all asset classes – including real estate. GDP is calculated by evaluating consumption, investment, government spending and net exports. If GDP is rising, the economy is improving. If GDP is falling or not moving, the economy is getting worse.
Annual GDP grew 2.4 percent in 2014
GDP growth was hampered by weather and a generally slow first quarter; however, things picked up in the final three quarters and 2014 overall was a strong year.
According to the U.S. Bureau of Economic Analysis, the increase in real GDP in 2014 reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.
Even though we saw growth in 2014, economists like to see GDP above 3 percent, so we hope to see more growth in 2015.
The aha: Growth should continue in 2015 with the help of lower energy prices
Experts expect to see continued GDP growth in 2015 and even into 2016. With lower energy prices, consumers are spending that money in other industries. In Q4 2014, consumer spending grew at the fastest rate it has in eight years, likely due to lower energy prices. As the unemployment rate decreases, confidence in the economy rises which is also fueling increased consumer spending.