2. Gross Domestic Product
GDP is the most common way to measure
how the economy is performing.
It usually is reported as REAL GDP.
Real GDP removes inflation from its
measure of growth.
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3. GDP Definition
The sales value of all final goods and services in
the US.
Excludes sales outside the USA by US
companies
Includes sales in the US by foreign businesses
Measured indirectly – Based on estimates of
wages and salaries received, dividends,
personal consumption, etc.
The best overall measure of economic growth
3
5. Why is GDP Growth Important?
The higher the growth,
The higher the standard of
living
The lower the unemployment
rate
Higher stock prices
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6. 2012 GDP Forecasts
The Conference Board 1.8%
Kiplinger 2.3
Org. for Economic Cooperation
and Development – OECD 2.0
Congressional Budget Office 3.1
Wall Street Journal Survey of
Economists 2.4
Federal Reserve 2.4 – 2.9
2011 Growth 1.8%
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7. Conclusions about GDP in 2012
Consensus average is about 2.3%, about
1/3 more than in 2011
2.5 – 3.5% growth is considered to be
strong
Economic growth in 2012 will be
moderate.
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10. What will happen in 2012?
No significant increases in interest rates.
Why not? Two reasons:
Economy is still soft – Policymakers will keep
the spigots open to keep rates low.
The Federal Reserve has a “hands off” policy as
presidential elections approach.
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11. A Warning
Interest rates are at, or near, lows for the past 60
or more years.
They have one way to change – up.
Once they begin rising, the prices of existing
bonds will fall.
The more rates rise, the great the decline in bond
prices.
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14. Unemployment Rate Forecasts –
End of 2012
Currently 8.5%
Kiplinger 8.5
Indiana U economists 8.4
Congressional Budget Office 8.2
Moody’s Analytics 8.7
Federal Reserve 8.5 – 8.7
Wells Fargo Securities 9.2
Bloomberg News Survey 8.3%
14
15. Unemployment Rates in MI –
November 2011
Michigan 9.8%
Ann Arbor 5.2
Grand Rapids – Wyoming 6.5
Holland – Grand Haven 6.5
Kalamazoo – Portage 6.9
Muskegon – Norton Shores 8.4
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16. Conclusions about the 2012
Unemployment Rate
Most forecasters don’t think the rate
will fall much.
If it doesn’t, economic growth – GDP –
will grow slowly.
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18. Ratio of Publicly Held Debt to GDP
Greece 144%
US 100
Ireland 94
Portugal 83
Hungary 80
Germany 79
A ratio over 90% constrains economic growth.
18
19. US Debt is Getting Bigger
On 1/1/12,
2011 US GDP was $15,064,816,000,000
US debt was: $15,170,600,000,000
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20. When Interest Rates Rise
A 1% rise in US Treasury interest rates will
add this amount to the national debt:
1% times $15 trillion = $150 billion per year
That’s $1.5 trillion over 10 years.
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21. What’s the Answer?
Higher economic growth
A cap on spending increases
Changes to Social Security and Medicare
No new expensive social programs
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28. Concerns for 2012
European recession will affect the US
economy
China’s growth appears to be slowing,
affecting world-wide demand (GDP)
Gridlock in Washington, D.C. prevents the US
from dealing with its problems
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29. Positives for 2012
Economy will continue to strengthen during the
year, with GDP growth stronger than in 2011.
Unemployment rate will continue to fall modestly
Stock prices will be volatile
Manufacturing will continue to be strong
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30. Final Comments
The economy is recovering moderately.
The unemployment rate will continue to fall
slowly.
2012 looks like a good year, and even the real
estate industry will recover.
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