Tag Archives: Economy

Economy Improving? Target to cut jobs several thousand jobs

Economy Improving? Target to cut jobs several thousand jobs

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Target’s chief executive, Brian Cornell, said Tuesday the retailer will cut several thousand jobs within the next two years as part of a $2 billion cost-savings plan.

The Minneapolis-based company also announced 2015 guidance of $4.45 to $4.65 adjusted earnings per share. Wall Street expected Target’s guidance at $4.50 adjusted earnings per share.

Target also expects digital sales to increase 40 percent and same-store sales between 1.5 and 2.5 percent, with modest improvement in gross margins and expense rates. It projects overall 2015 sales to grow between 2 and 3 percent.

The company’s stock closed at $78, or up 0.41 percent.

For 2016, Target expects earnings per share to increase 10 percent and a 5 to 10 percent dividend growth rate.

Last week, the retailer reported earnings of $1.50 per share on revenue of $21.75 billion, beating Wall Street’s expectations of $1.46 per share on $21.63 billion in revenue. The company’s total U.S. sales also grew by 1.9 percent in 2014.

Russia gears up for sharp slump as bailed-out bank gets more funds

Russia gears up for sharp slump as bailed-out bank gets more funds

An employee counts Russian ruble banknotes at a small private shop selling home appliances in Krasnoyarsk December 26, 2014. REUTERS/Ilya Naymushin
An employee counts Russian ruble banknotes at a small private shop selling home appliances in Krasnoyarsk December 26, 2014.

(Reuters) – Slumping oil prices have put Russia’s economy on course for a sharp recession next year, its finance minister said on Friday, as authorities scaled up the bailout of the first bank to succumb to the country’s currency crisis.

Russia’s economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a sharp slump in oil prices severely reduces Russia’s export revenues and pummels the rouble.

The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the rouble.

Finance Minister Anton Siluanov told journalists on Friday that the economy could shrink by 4 percent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel.

Siluanov also said the country would run a budget deficit of over 3 percent next year if the oil price did not rise.

Crude prices have almost halved from their June peak amid a global glut and a decision by producer group OPEC not to cut output. Saudi Arabia said on Friday it was prepared to withstand a prolonged period of low prices.

“We need to have our budget break even at $70 per barrel by 2017,” said Siluanov.

Russia’s government also imposed informal capital controls this week, including orders to large oil and gas exporters Gazprom (GAZP.MM) and Rosneft (ROSN.MM) to sell some of their dollar revenues in a bid to shore up the rouble.

Russians have kept a wary eye on the exchange rate since the collapse of the Soviet Union, when hyper-inflation wiped out their savings over several years in the early 1990s.

The slide in the rouble will inevitably lead to higher inflation next year, which after years of stability threatens President Vladimir Putin’s reputation for ensuring the country’s prosperity.

ROUBLE TROUBLE

The Russian currency slipped on Friday after hitting its strongest levels in more than three weeks earlier in the day,

At 1245 GMT, the rouble traded at over 54 per dollar, a sharp rebound from its recent all-time lows of 80 but still far weaker than the 30-35 range it was trading at in the first half of 2014.

“If oil goes down to $50 (per barrel)… I don’t think our authorities will be able to artificially maintain the (rouble) rate even with higher sales by exporters,” said the head of treasury at a major Russian bank, who asked not to be named because he is not authorised to speak to media.

On Friday, Russian authorities also significantly scaled up rescue funds for Trust Bank, saying they would provide up to $2.4 billion in loans to bail out the mid-sized lender. The falling rouble has prompted panic buying of foreign currency in Russia and a spike in deposit withdrawals, heaping pressure on a vulnerable domestic banking sector whose access to international capital markets had already been restricted by Western sanctions.

Credit agency Standard & Poor’s said this week it could downgrade Russia’s rating to junk as soon as January due to a rapid deterioration in “monetary flexibility” in the country.

Meanwhile Russian gold and forex reserves have fallen to their lowest levels since 2009. Last week, reserves dropped by as much as $15.7 billion to below $400 billion, down from over $510 billion at the start of the year.

Slow Christmas sales? Retailers hope holiday procrastinators will save their year

Slow Christmas sales? Retailers hope holiday procrastinators will save their year

Could this be a sign of how bad the economy really is?

The State Column

Retailers hope holiday procrastinators will save their year
Retailers are now pulling out all the stops to get consumers into the stores.

It will be down to holiday procrastinators to save the bottom lines of retailers, according to sales data.

Sales were up 1.8 percent from Nov. 1 through this past Monday compared to last year, which is a modest gain that is not in line with the National Retail Federation’s expectation that sales for the entire season will be up 4.1 percent to $616.9 billion, according to an Associated Press report.

In order to jumpstart sales, retailers have tried a number of tactics, including offering “holiday” deals as far back as Halloween to try to get people spending before Black Friday the day after Thanksgiving. Stores also opened on Thanksgiving Day to get consumers’ wallets open sooner.

However, these incentives don’t appear to be working. Although shoppers did take advantage of them, it simply meant a decrease in sales on Black Friday, and overall numbers that were lower than expected. That means the last few days before Christmas will be critical.

Retailers are now pulling out all the stops to get consumers into the stores. Hhgregg, for example, is creating a “buy more, save more” sales event that will end this week, and it is extending the cutoff date for online shoppers picking up their gifts until noon Christmas Eve, a day later than it was last year.

Macy’s and Toys R Us meanwhile are offering shopping hours into the evening on Christmas Eve. Kohl’s will be open for 132 hours straight, compared to 108 hours last year.

There is likely a lot of shopping to be done, and this weekend may end up being the biggest shopping period of the year. A survey of more than 6,000 shoppers conducted by the retail trade group found that only 52.9 percent of consumers had completed holiday shopping.

Poll: This year was bad. Next year? Maybe worse

Poll: This year was bad. Next year? Maybe worse

WASHINGTON — Our long national funk isn’t over.

The stock market has been booming and jobs growing, but Americans are facing the new year with the most downcast expectations in nearly a quarter-century — a disconnect that reflects prosperity’s limited reach and assessments that Washington’s dysfunction isn’t going to get better any time soon.

An end-of-the-year USA TODAY/Pew Research Center Poll finds an overwhelming 71% of those surveyed are dissatisfied with the way things are going in the country today. Just 49% predict 2015 will be better — the first time since 1990 that optimism for the year ahead has dipped below 50%.

Those attitudes have fueled developments as disparate as the rise of the Tea Party movement and coast-to-coast protests over the police shooting in Ferguson, Mo., says Matthew Dowd, a strategist for George W. Bush’s 2000 presidential campaign. “There’s a general sense of anger and frustration that nothing seems to change,” he says. “They don’t trust that anybody has their back.”

Pessimism persists even though voters in last month’s elections shook up who’s in charge — Republicans will take control of the Senate as well as the House next month — and despite evidence that the economic recovery is on a stronger footing. In the past, those factors might have sparked a more upbeat public mood.

Not this time.

For one thing, the improving economy hasn’t boosted everybody. While the jobless rate has declined to 5.8%, many people have given up looking for work and others are underemployed. A record-breaking stock market mostly helps those who own stocks.

For another, dismay over governmental gridlock may be dampening the impact of good news — a case of politics trumping pocketbooks.

In the poll, 81% say the country is more politically divided these days than in the past, the highest percentage in a decade. Seventy-seven percent predict that situation isn’t going to get better over the next five years. More than a third expect it to get worse.

The nationwide telephone survey of 1,507 adults, taken Dec. 3-7, has a margin of error of plus or minus 3 percentage points.

The public’s dyspeptic mood complicates the political landscape for the 2016 presidential race, which is poised to begin in earnest early next year.

“Voters’ lack of confidence in the political system goes beyond their disgust with what they see as mindless partisanship,” says Democratic pollster Geoffrey Garin, a strategist for Hillary Rodham Clinton’s 2008 presidential campaign. “They also think the system is largely controlled by wealthy special interests that only look out for themselves. This feeling of mistrust extends to the economic system itself, which a large majority believe works for the wealthy rather than for all Americans.”

WHAT’S WRONG?

Ask Americans to name the biggest problem facing the country and the state of the economy tops the list, cited by 14%, while 10% cite unemployment. Concern about immigration was cited by 12%. Unhappiness with government is cited by 10%.

No other issue breaks into double digits. Concern about the deficit and crime has declined from 2012. Just 1% name morality or global warming. As the two-year anniversary of the devastating Sandy Hook Elementary School shooting approaches, the percentage who mention gun control has dropped from 8% in 2012 to less than 1% now.

Whatever their concern, more than three of four respondents predict that Obama and Republican leaders in Congress won’t make significant progress during the next year in fixing whatever the problem is that worries them most.

While Republicans scored big gains last month in congressional and gubernatorial elections from Massachusetts to Colorado, views of the GOP haven’t improved. Instead, they’ve soured a bit since before the midterms. Even in victory, the party’s favorable-unfavorable rating is now underwater by 20 percentage points, 37%-57%.

Republicans won not because voters were convinced they had the answers but because “patience ran out” for Obama and Democratic policies to work, says David Winston, a pollster who advises the House Republican leadership, among others. That gives the GOP no more than an opportunity to win them over.

“What Republicans need to realize, this wasn’t a mandate for any particular policy,” Winston says. “People are saying, ‘Let’s hear your ideas.’ This is not a done deal.”

Views of the Democratic Party are only a stitch better: 41% favorable-54% unfavorable.

And views of Congress just keep sinking: 22% favorable, 71% unfavorable.

President Obama’s overall approval rating seems stuck at a tepid 42% in part because it’s problematic for him to take credit for good economic news when so many Americans believe the country fundamentally has gotten off on the wrong track. In the survey, those who “very strongly” approve of the job he’s doing hits a new low of 24%; those who “very strongly” disapprove hits a new high of 40%.

On seven of eight specific issues, from handling immigration to terrorism, Obama’s disapproval rating is higher than his approval rating. (On energy policy, it’s tied, at 41%-41%.)

NOT-SO-GREAT EXPECTATIONS

Americans are braced for more stalemate over the next two years.

A 54% majority predict Obama won’t offer Republican congressional leaders much cooperation. Even more, 70%, say Republican congressional leaders won’t cooperate much with the White House.

Those expectations are more negative than they were in 2006, when the midterm elections in the sixth year of president George W. Bush’s tenure delivered Senate control to the opposition party.

How much does it matter? Voters who are divided on issues from Obamacare to the battle against the Islamic State agree that the failure of Republicans and Democrats to work together is damaging the nation; 71% say it’s hurting “a lot.” Most see an impact even in their personal lives.

On these questions, there is almost no partisan divide.

“This is an area where the American people are way ahead of Washington,” Arkansas Sen. Mark Pryor, a Democrat who lost his bid for a third term, said this week in a farewell speech on the Senate floor. “People all around our nation look at Washington and they shake their heads. …The political environment today grinds the trust and confidence out of our system. Let me tell you, that is not good for anybody.”

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If Economy Is Fine, Why So Many Really Smart People Forecasting Economic Disaster?

If Economy Is Fine, Why So Many Really Smart People Forecasting Economic Disaster?

The parallels between the false prosperity of 2007 and the false prosperity of 2014 are rather striking

financial economic collapse

by MICHAEL SNYDER | ECONOMIC COLLAPSE

The parallels between the false prosperity of 2007 and the false prosperity of 2014 are rather striking. If we go back and look at the numbers in the fall of 2007, we find that the Dow set an all-time high in October, margin debt on Wall Street had spiked to record levels, the unemployment rate was below 5 percent and Americans were getting ready to spend a record amount of money that Christmas season.

But then the very next year the worst economic crisis since the Great Depression shook the entire planet and everyone wondered why most people never saw it coming.

Well, now a similar pattern is unfolding right before our eyes. The Dow and the S&P 500 both hit record highs on Monday, margin debt on Wall Street is hovering near record levels, the unemployment rate has ticked down a little bit and Americans are getting ready to spend more than 600 billion dollars this Christmas season.

The truth is that the economy seems pretty stable for the moment, and most people cannot even imagine that an economic collapse is coming. So why are so many really smart people forecasting economic disaster in the near future?

For example, just consider what the Jerome Levy Forecasting Center is saying. This is an organization with a tremendous economic forecasting record that goes all the way back to the Great Depression. In fact, it predicted ahead of time the financial trouble and the recession that would happen in 2008. Well, now this company is forecasting that there is a 65 percent chance that there will be a global recession by the end of next year…

In 1929, a businessman and economist by the name of Jerome Levy didn’t like what he saw in his analysis of corporate profits. He sold his stocks before the October crash.
Almost eight decades later, the consultancy company that bears his name declared “the next recession will be caused by the deflating housing bubble.” By February 2007, it predicted problems in the subprime-mortgage market would spread “to virtually all financial markets.” In October 2007, it saw imminent recession — the slump began two months later.

The Jerome Levy Forecasting Center, based in Mount Kisco, New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year.

Could they be wrong?

It’s certainly possible.

But I wouldn’t bet against them.

John Hussman is another expert that is warning of financial disaster on the horizon. He believes that we are experiencing a massive stock market bubble right now and that stocks are approximately double the value that they should be…

If you look at corporate profits and especially corporate profit margins, they’re one of the most cyclical and mean-reverting series in economics. Right now, we have corporate profits that are close to about 11% of GDP, but if you look at that series you will find that corporate profits as a share of GDP have always dropped back to about 5.5% or below in every single economic cycle including recent decades, including not only the financial crisis but 2002 and every other economic cycle we have been in.

Right now stocks as a multiple of last year’s expected earnings may look only modestly over valued or modestly richly valued. Really if you look at the measures of valuation that are most correlated to the returns that stocks deliver over time say over seven years or over the next 10 years the S&P 500 in our estimation is about double the level of valuation that would give investors a normal rate of return.
Could you imagine the chaos that would ensue if stocks really did drop by 50 percent?

Well, Hussman says that this is precisely what must happen in order for stock prices to return to historical norms…

Right now, like I say, we are looking at stocks that have been pressed to long-term expected returns that are really dismal. But more important than that, in every market cycle that we’ve seen with the mild exception of 2002, we’ve seen stocks price revert back to normal rates of return. In order to get to that point from here, we would have to have equities dropby about half.
If that does happen, it will make the crisis of 2008 look like a Sunday picnic.

Meanwhile, other very prominent thinkers are also warning that an economic nightmare is rapidly approaching.

Economic cycle theorist Martin Armstrong foresees major economic problems in 2015 which will ultimately lead to “civil unrest” in 2016…

It looks more and more like a serious political uprising will erupt by 2016 once the economy turns down. That is the magic ingredient. Turn the economy down and you get civil unrest and revolution.
And of course there are a whole lot of other economic cycle theorists that are forecasting that we are about to experience a massive economic downturn as well. For much more on this, please see this article andthis article.

What is truly frightening is that we have never even come close to recovering from the last economic crisis. One poll that was taken just prior to the recent election found that only 28 percent of Americans said that their families were doing better financially. In addition, here are some more survey numbers about how Americans are feeling about the economy…

According to voter exit polls conducted by CNN, 78% said they are worried about the economy, with 69% saying that, in their view, economic conditions are not good. 65% responded that the country is on the wrong track vs. only 31% who believed that it is headed in the right direction.

Even though we are repeating so many of the same patterns that we experienced back in 2007, we are doing so with a fundamentally weaker economy. The last crisis did a tremendous amount of permanent damage to us. For an extensive look at this, please see my previous article entitled “12 Charts That Show The Permanent Damage That Has Been Done To The U.S. Economy“.

And there are lots of signs that much of the planet is already entering another major economic slowdown. In a recent article, Brandon Smith summarized some of these. He says that we are currently witnessing “the last gasp of the global economy“…

Global exports, and thus consumer demand, are plunging. Germany, the only pillar left to prop up the failing European Union, has experienced a severe decline in exports not seen since 2009.

China, the largest exporter and importer in the world, and Chinese companies, have been caught in a number of instances using fraudulent invoices to artificially inflate their own export numbers, in some cases reporting 50% more exported goods than had actually existed.

China’s manufacturing has also declined for the past five months, exposing the nature of its inflated export stats and indicating a global slowdown.

The Baltic Dry Index, a measure of global shipping rates for raw goods, and thus a measure of demand for shipping, continues to drag along near historic lows.

The U.S. consumer (the only economic asset the U.S. has besides the dollar’s world reserve status), has seen declines in spending as well as wages.

In the meantime, long term jobless Americans continue to fall off welfare rolls by the millions, making unemployment numbers look good, but the overall future picture look terrible as participation rates dissolve into the ether of government statistics.

How is such poverty being hidden? Foodstamps. Plain and simple. Nearly 50 million Americans now subsist on food stamp programs today, and this number shows no signs of dropping. In states like Illinois, two people sign up for food assistance for every citizen that happens to find a job.
From time to time, I get accused of “spreading fear” and of being obsessed with “doom and gloom”.

But that is not the case at all.

I actually want our economy to stay stable for as long as possible. Many Americans don’t realize this, but even the poorest of us live in luxury compared to much of the rest of the world. It would be wonderful if we could all live out our lives in peace and quiet and safety.

Unfortunately, it is simply not going to happen.

And it does not take an expert to see what is coming.

Anyone with half a brain should be able to see the economic disaster that is approaching.

There is hope in understanding what is happening and there is hope in getting prepared. Millions of Americans that are willingly blind to our problems are going to have their lives absolutely destroyed when they get blindsided by the coming crisis. So please use this brief period of relative stability to get prepared and to warn others.

Once this false bubble of hope runs out, all of our lives are going to dramatically change.

Most People Cannot Imagine That A US Economic Collapse Is Coming

Most People Cannot Imagine That A US Economic Collapse Is Coming

The idea that the United States is on the brink of a horrifying economic crash is absolutely inconceivable to most Americans.

Most People Cannot Even Imagine That An Economic Collapse Is Coming

by MICHAEL SNYDER | ECONOMIC COLLAPSE

The idea that the United States is on the brink of a horrifying economic crash is absolutely inconceivable to most Americans.

After all, the economy has been relatively stable for quite a few years and the stock market continues to surge to new heights. On Friday, the Dow and the S&P 500 both closed at brand new all-time record highs. For the year, the S&P 500 is now up 9 percent and the Nasdaq is now up close to 11 percent.

And American consumers are getting ready to spend more than 600 billion dollars this Christmas season. That is an amount of money that is larger than the entire economy of Sweden.

So how in the world can anyone be talking about economic collapse? Yes, many will concede, we had a few bumps in the road back in 2008 but things have pretty much gotten back to normal since then. Why be concerned about economic collapse when there is so much stability all around us?

Unfortunately, this brief period of stability that we have been enjoying is just an illusion.

The fundamental problems that caused the financial crisis of 2008 have not been fixed. In fact, most of our long-term economic problems have gotten even worse.
But most Americans have such short attention spans these days. In a world where we are accustomed to getting everything instantly, news cycles only last for 48 hours and 2008 might as well be an eternity ago.

In the United States today, our entire economic system is based on debt.

Without debt, very little economic activity happens. We need mortgages to buy our homes, we need auto loans to buy our vehicles and we need our credit cards to do our shopping during the holiday season.

So where does all of that debt come from?

It comes from the banks.

In particular, the “too big to fail banks” are the heart of this debt-based system.

Do you have a mortgage, an auto loan or a credit card from one of these “too big to fail” institutions? A very large percentage of the people that will read this article do.

And a lot of people might not like to hear this, but without those banks we essentially do not have an economy.

When Lehman Brothers collapsed in 2008, it almost resulted in the meltdown of our entire system. The stock market collapsed and we experienced an absolutely wicked credit crunch.

Unfortunately, that was just a small preview of what is coming.

Even though a few prominent “experts” such as New York Times columnist Paul Krugman have declared that the “too big to fail” problem is “over”, the truth is that it is now a bigger crisis than ever before.

Compared to five years ago, the four largest banks in the country are now almost 40 percent larger. The following numbers come from a recent article in the Los Angeles Times…

Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.

And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.
At the same time that those banks have been getting bigger, 1,400 smaller banks have completely disappeared from the banking industry.

That means that we are now more dependent on these gigantic banks than ever.

At this point, the five largest banks account for 42 percent of all loans in the United States, and the six largest banks account for 67 percentof all assets in our financial system.

If someone came along and zapped those banks out of existence, our economy would totally collapse overnight.

So the health of this handful of immensely powerful banking institutions is absolutely critical to our economy.

Unfortunately, these banks have become deeply addicted to gambling.

Have you ever known people that allowed their lives to be destroyed by addictions that they could never shake?

Well, that is what is happening to these banks. They have transformed Wall Street into the largest casino in the history of the world. Most of the time, their bets pay off and they make lots of money.

But as we saw back in 2008, when they miscalculate things can fall apart very rapidly.

The bets that I am most concerned about are known as “derivatives“. In essence, they are bets about what will or will not happen in the future. The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect. The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people. They might be really smart people, but they are still just people.

If things stay fairly stable like they have the past few years, the algorithms tend to work very well.

But if there is a “black swan event” such as a major stock market crash, a collapse of European or Asian banks, a historic shift in interest rates, an Ebola pandemic, a horrific natural disaster or a massive EMP blast is unleashed by the sun, everything can be suddenly thrown out of balance.

Acrobat Nik Wallenda has been making headlines all over the world for crossing vast distances on a high-wire without a safety net. Well, that is essentially what our “too big to fail” banks are doing every single day. With each passing year, these banks have become even more reckless, and so far there have not been any serious consequences.

But without a doubt, someday there will be.

What would you say about a bookie that took $200,000 in bets but that only had $10,000 to cover those bets?

You would certainly call that bookie a fool.

But that is what our big banks are doing.

Right now, JPMorgan Chase has more than 67 trillion dollars in exposure to derivatives but it only has 2.5 trillion dollars in assets.

Right now, Citibank has nearly 60 trillion dollars in exposure to derivatives but it only has 1.9 trillion dollars in assets.

Right now, Goldman Sachs has more than 54 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.

Right now, Bank of America has more than 54 trillion dollars in exposure to derivatives but it only has 2.2 trillion dollars in assets.

Right now, Morgan Stanley has more than 44 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.

Most people have absolutely no idea how incredibly vulnerable our financial system really is.

The truth is that these “too big to fail” banks could collapse at any time.

And when they fail, our economy will fail too.

So let us hope and pray that this brief period of false stability lasts for as long as possible.

Because when it ends, all hell is going to break loose.

GDP: Final Estimate For First Quarter Is Much Worse Than Expected

GDP: Final Estimate For First Quarter Is Much Worse Than Expected

GDP Down

The Bureau of Economic Analysis (BEA) released its third and final estimate of U.S. GDP this morning and it was much worse than anticipated.

The BEA publishes three estimates for GDP, the first estimate is released about 30 days after the quarter ends. The next two follow about 30 and 60 days later. Hence, the third and final estimate was released this morning which revised GDP down to a negative 2.9% in the first quarter of 2014.

Related: What is GDP and Why is it Important?

The first estimate (April 30) indicated that the economy grew by a mere 0.1%. The second estimate (May 29) revised this to a negative 1.0%. Today, the estimate which will remain in the record book indicated that the economy contracted by nearly 3.0%. This sent stock futures lower on the news.

According to the report, the primary cause of the substantial negative revision was due to, “negative contributions from private inventory investment, exports, state and local government spending, nonresidential fixed investment, and residential fixed investment.”

As I mentioned in my most recent article, “Is There A Problem Brewing In The Stock Market?” stocks cannot continue to rise in the face of a weak economy. At some point, a slow economy will hurt corporate profits, which could be a catalyst for falling stock prices. Was the poor report due to the weather?

Of course, we’ll have to wait for the second quarter GDP estimate to know. However, if the second quarter is also negative (which is not expected), we’ll have a textbook recession, and stocks generally do not fare well leading up to and during the early stages of a recession. Stay tuned.

What is GDP and why is it so important?

What is GDP and why is it so important?

by Investopedia Staff

GDP Gross Domestic Product

Gross Domestic Product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period – you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.

The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.

European video on the basics of GDP explained:

As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy.

A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It’s not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.