Gross Domestic Product, or GDP, is the value of all final goods or services produced in an economy in a given year. It is split into four different components: consumption, investment, government spending, and net exports. Consumption is 66% of GDP, and is divided into three separate parts: durable goods, nondurable goods, and services. Investment is 17% of GDP, and is divided into four separate parts: residential construction, nonresidential construction, purchase of capital equipment, and changes in inventories. Government spending is also 17% of GDP, and is divided into three separate parts: state spending, local spending, and federal spending. Net exports is around 1% of GDP, and is calculated by subtracting imports from exports. Consumption
The consumption component makes up approximately 66% of GDP. Consumption as a whole is measured by consumer spending, which, according to the Commerce Department, rose in February by 0.2% following a 1% increase in January. Real personal spending and personal income, however, both declined 0.2% in February. Personal savings fell $27.4 billion in February, and the personal savings rate declined to 4.2% from 4.4% in January. That makes sense, because if consumers are spending more they are saving less. Also, consumer confidence fell to 56.3 in February from 61.2 in January, its lowest final reading since 55.3 in November. A survey from the Reuters/University of Michigan Surveys of Consumers said that this occurred because of “expectations that the recession would grind on throughout this year and the jobless will keep rising.” The 12 month economic outlook index also fell to 31 in February from 47 in January; this is its lowest since 1980. Looking at these numbers, it is clear that the consumer does feel that the economy will be getting better any time soon. Consumption is divided into three separate parts. The first of these is durable goods, which is affected the most during a recession. Durable goods are goods that last for more than three years, such as automobiles. New orders for durable goods dropped 7.3% in January, but rose 3.4% in February. According to the Commerce Department, this is the biggest increase since December 2007 and the first rise in seven months. Also, excluding transportation, new orders rose 3.9% in February, which is the largest gain since August 2005. According to J.D. Power and Associates, auto sales in the first two weeks of March were down 40% compared to this time last year, and February sales were down 41% compared to this time last year. The automobile industry is expecting to see large losses in this quarter. The second part of consumption is nondurable goods. Nondurable goods are goods that last for no more than three years, such as food and clothing. Orders for nondurable goods rose 0.3% in February, after an increase of 0.4% in January. Clothing prices rose 1.3% in February, while food prices were down 0.1% in February. Also, according to Bloomberg, sales at United States wholesalers fell 2.9% in January, which is the lowest level in more than three years; however, nondurable goods sales at wholesalers actually were up, with drugs, groceries, alcohol, farm products, and apparel leading the way. Nondurable goods are excelling in this economy, because these are necessary goods. The third part of consumption is services. Services are very important in the economy of the United States, because the economy is a service economy. According to the Institute for Supply Management, the non-manufacturing index dropped to 40.8 in March, down from 41.6 in February. It was the sixth consecutive month of decline for the non-manufacturing index. Employment in the service sector also fell in March, to 32.3 from 37.3 in February. The Institute for Supply Management has stated that any number below 50 denotes contraction in the sector. In the article entitled “US Service Sector Retreats Again in March” on CNNMoney.com, it...
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