Goldman Sachs / Fiscal Policy and Inventory Impact on Real GDP Growth
June 16, 2010    Disclosures    POSTED IN  Economy

Goldman Sachs

Comment: The fiscal stimulus added roughly 2% and 3% during Q2 and Q3 respectively. During the same time companies began building back up inventories, which added an additional 1% during Q3 2009. While stimulus and inventory growth will contribute in a meaningful way to GDP from Q4 2009 to Q2 2010, by Q3 2010 both are projected to add very little. Just one year out, fiscal policy is projected to have a negative impact on GDP.

In order for the U.S. economy to grow at a rate fast enough to recover from the recent downturn gross private domestic investment will have to begin adding to GDP in a significant way. The recent contributions to GDP from gross private domestic investment have been -8.98%, -3.10% and 0.91% respectively from Q1 2009 to Q3 2009.

Gross private domestic investment added meaningfully to GDP as the U.S. economy clawed its way out of the 1980-1982 double dip recession, adding 2.2%, 5.87%, 4.3% and 6.84% in the first four non-recession quarter of 1983. Personal consumption added another 2.54% to 5.22% during 1983. Further, while personal consumption added 2.8% during Q3 2009, consumption will also have to remain strong to counter act the projected negative effects that the fiscal policy will have on GDP starting in Q4 2010.

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