Who’s right, consumers or businesses?

The Markets

Who’s right, consumers or businesses?

As it relates to the U.S. economy, consumers seem to feel optimistic about it while businesses are hunkering down.

This split showed up in last week’s release of the first estimate of third quarter gross domestic product (GDP), defined as the output of goods and services produced by labor and property located in the United States. The government said GDP grew a modest 2.0 percent. How we got to the 2.0 percent growth rate is where it gets interesting.

For background, GDP consists of 4 major components:

1)    Personal consumption expenditures

2)    Business investment

3)    Government spending

4)    Net exports of goods and services

Source: Department of Commerce

Of these four components, the first one – personal consumption expenditures – typically accounts for about 70 percent of the total. So, if consumers are optimistic and in a shopaholic mood, that bodes well for economic growth. And, in the third quarter, they were as consumer spending accounted for most of the 2.0 percent increase in GDP.

Businesses, on the other hand, were rather subdued. Capital spending actually declined in the third quarter as, “Slower world growth and worries about a budget crisis at home have spurred U.S. business to take a more cautious stance on hiring and investment,” according to MarketWatch.

Now, all we have to do is get businesses to drink the same Kool-Aid as consumers and we’ll be off to the races!

The rest of the report can be found here.

Please be sure to visit the Parks Wealth Management website at www.parkswm.com.

Best regards,

James T. Parks, CFP®, AEP, AIF
President and Wealth Advisor