A GDP Backed Stock Index

Bernanke is Cautious on Employment, Looks at Demand

Last week, Fed Chairman Ben Bernanke appeared before Congress to provide his semi-annual monetary policy testimony. gdp la gi He said that improvement in employment must be closely monitored in view indicators that show demand not strengthening in kind. Such sentiment disappointed equities markets, which closed down, despite good GDP numbers and success coming from the European Central Bank’s second LTRO.

Unemployment has fallen to 8.3% from 9%, where it hovered for most of 2011. Apparently the fall in unemployment has been rather fast and deep, with the current rate at the Fed’s low end of its year-long 2012 forecast. Unemployment started to decline in November of last year dropping to 8.6%. What is surprising is that quarterly GDP numbers leading up to November weren’t very strong. Q1 showed GDP advancing by.4%; Q2, 1.3%; Q3, 1.8%. Today, GDP showed Q4 growth at an impressive 3.0%, with an annual gain of 1.7%.

Still, throughout 2010, a time when GDP numbers were consistently stronger than in 2011, and in fact ended with 3.0% annual growth, unemployment numbers didn’t budge. What’s special about Q4 2011 to bring down unemployment in a dramatic fashion…

Fed forecasts have GDP growth in the area of trend at 2.3% to 2.6% for 2012. According to Bernanke, “with output growth in 2012 projected to remain close to its longer-run trend, FOMC members did not anticipate further substantial declines in the unemployment rate over the course of this year.” For rates of job growth to be repeated, Bernanke said that it would “likely require stronger growth in final demand and production.”

Headwinds are starting to blow against growth in final demand and production. Bernanke saw elevating gas prices pushing up inflation and depressing consumer purchasing power.

Vehicles Have Led Demand, But Demand Needs a Broader Base

Final demand can be seen in retail sales indicators. Monthly results for retail have been flat through Q4, except for the motor vehicle component. Vehicle sales have also influenced consumer credit expansion and the growth of associated manufacturing sectors.

According to last week’s release of GDP numbers by the Bureau of Economic Analysis, motor vehicles lead growth across GDP components in Q4, posting growth of.81%, and annual growth at.19%. Last time growth was seen in motor vehicles of this magnitude was in Q3 of 2009, with a rate of.92%. Of course, when vehicle sales increase, associated production also increases and, with it, investment. Investment in industrial equipment showed basic strength through 2011, growing.22% in Q4. Transportation equipment was also strong in 2011, with Q4 results growing.18%.