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The Current Economy & Your Household GDP

As stock markets continue to struggle, we’re bombarded with economic data that seemingly points to why the markets will continue their decline – or why they will rebound later this year.

Consider some recent data-headlines:

  • Housing sales drop for 12th straight month;
  • Inflation is still at a 40-year high;
  • Consumer spending is declining;
  • Consumer sentiment is weakening; and
  • GDP is up but not by as much as economists had hoped.

While much of this economic data can prove useful as guideposts to your investing plans, wouldn’t it be more useful if the data was specific to you?

For example, do you care (as much) that average housing prices have seemingly stalled if you have no intention of moving for another 15 years? Probably not as much

Maybe it would be more helpful to receive macroeconomic data through your personal filters, so you could use that data to inform your investing decisions and retirement planning?

Real Gross Domestic Product

On February 23rd, the Bureau of Economic Analysis reported that real gross domestic product (GDP) increased at an annual rate of 2.7% in the fourth quarter of 2022, after increasing 3.2% in the third quarter. But do you truly know what that “real GDP” means?

In very simple terms, the GDP of a country is an estimate of the total value of all the goods and services it produced during a specific period, usually a quarter or a year. It can be calculated by adding up all of the money spent by consumers, businesses, and government in a certain period (it may also be calculated by adding up all of the money received by all the participants in the economy). That number is called “nominal GDP” and once adjusted to remove any effects due to inflation, then we have the “real GDP.”

The real GDP is a number followed closely by Wall Street and economists as it represents a very broad measure of our country’s overall production and serves as a very comprehensive metric of the overall economic health of our country.

But seeing that GDP for the fourth quarter stood at $26.2 trillion might not be as useful to most of us, so it is often best used as a point of comparison from previous periods.

In other words, did our nation’s economy grow or contract compared to the previous quarter or year?

Understanding Why the Change to GDP

While GDP is a useful measure of our nation’s economic health, have you considered calculating your household’s GDP? 

Here is an explanation of the recent increase in GDP from the Bureau of Economic Analysis:

“The increase in real GDP in the fourth quarter reflected increases in private inventory investment, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by decreases in residential fixed investment and exports. Imports decreased.

The increase in private inventory investment was led by manufacturing (mainly petroleum and coal products) as well as mining, utilities, and construction industries (led by utilities). The increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods. Within services, the increase was led by health care as well as housing and utilities. Within goods, the leading contributor to the decrease was “other” durable goods (mainly jewelry). Within nonresidential fixed investment, increases in intellectual property products (mainly software) and structures were partly offset by a decrease in equipment. Within federal government spending, the increase was led by nondefense spending. The increase in state and local government spending primarily reflected an increase in compensation of state and local government employees.

Within residential fixed investment, the leading contributors to the decrease were new single-family construction and brokers’ commissions. Within exports, a decrease in goods (led by nondurable goods excluding petroleum) was partly offset by an increase in services (led by travel as well as transport). Within imports, a decrease in goods (led by durable consumer goods) was partly offset by an increase in services (led by travel).

Compared to the third quarter, the deceleration in real GDP in the fourth quarter primarily reflected a downturn in exports and decelerations in consumer spending, nonresidential fixed investment, and state and local government spending. These movements were partly offset by an upturn in private inventory investment, a smaller decrease in residential fixed investment, and an acceleration in federal government spending. Imports decreased less in the fourth quarter than in the third quarter.”

What is Your Household’s GDP?

Calculating your household’s GDP on a quarterly or yearly basis – and comparing it to the previous quarter or year – might be a useful exercise for you to determine the economic health of your household.

It would surely be useful as you think through your retirement goals and plans.

Retirement can sneak up on you, but you don’t have to be unprepared.

Being proactive in retirement is one of the many ways to help set yourself up for success now and into the future.

Our team understands the importance of partnering with families to be a financial ally. One who is able to help you put all the pieces of your financial puzzle together from where you’re at right now to beyond and into your legacy.

If you’ve found yourself losing sleep over your approaching retirement, there’s still hope. 

We work with affluent clients who are about five years or less from retirement. We’ve developed and refined an approach that helps our clients put all the pieces of the financial puzzle together to ensure they are prepared. We call it The PEAK FORMula™.

We’re happy to talk you through your concerns, answer any questions, and give you peace of mind when it comes to what’s next on your retirement journey. You can reply back to this email, or you can give our office a call.