GDP Growth Shows America is Back on Track
Real GDP grew at a 2.5 percent annual rate during the third quarter of 2011. The White House said Thursday that this marked the ninth straight quarter of positive growth for the country.
The growth comes as a bit of a shock to analysts who were expecting a lower number. Instead, they got a whopper of a number, and with it, a sign that perhaps things have finally turned around. How good of news is this? According to White House blogger Katharine Abraham, "the level of real GDP now exceeds its level at the business cycle peak in the fourth quarter of 2007."
There is still much to do, of course. Population growth during the recession shows that more growth will be needed to reduce overall unemployment and regain tax receipts lost during the downturn. This focus on job creation, along with increased taxes on the wealthiest Americans, have been the hallmarks of the President's plan to work on the deficit while fixing the jobs crisis and the general economy in America.
A few high points brought out in the report include:
- Business investment grew 16.3 percent at an annual rate
- Residential construction increased 2.4 percent at an annual rate
- Residential construction was up 1.6 percent the last four quarters, the first time it's grown four straight quarters without a government subsidy since 2006.
- Consumer spending grew 1.7 percent
- Fixed investments grew 1.6 percent
- Net Exports grew 0.2 percent
While more growth will be needed, these numbers are a great first sign that perhaps the economy has turned around. At the very least, retailers might be looking forward to a Christmas season that boosts their revenues, rather than a lackluster affair. To that end, the president has proposed the American Jobs Act, which is currently before the Congress.
Whether that bill, or something similar passes, the government has to tackle the questions of how to increase jobs while also slicing the deficit, or it risks killing the recovery in its infancy.
ACTION ITEMS:
Bullish: If you think the economy has turned the corner and is headed for a growth period, you may want to look at investments that could fuel the growth.
- This could include house construction, if that growth becomes real and long-lasting. If so, consider Toll Brothers (NYSE: TOL) for luxury market homes, which could grow despite a recession. You might also look at the upside of KB Homes (NYSE: KBH), which operates in areas hardest hit by the housing crisis. If that crisis clears up, they could be in for growth.
- The overall market would be a good place to start, actually. Consider an ETF like the S&P 500 ETF (NYSE: SPY), which tracks the overall S&P performance.
- If exports truly are on the rise, this would signal a weaker dollar. Be prepared to jump in on forex trades that reflect a weaker dollar position.
Bearish: If you're pretty sure that Obama and/or the Republicans will doom the economy long before we see more growth, there are other positions you can take.
- Go long on gold. Just buy as much gold as you can. As the economy tanks, people need to put their money somewhere, and so far, that's been gold. You can buy gold ETFs like the SPDR Gold Trust (NYSE: GLD) or you can buy mining companies like Newmont (NYSE: NEM) and Freeport-McMoran (NYSE: FCX).
- Short the dollar. Forex is always risky, but a sinking economy could drive the dollar further downward. Consider how Europe is doing before throwing your money into the EUR/USD.
- Even in a bad economy, people are going to buy SOMETHING for Christmas. Look at low-end, discount retailers. Consider Walmart (NYSE: WMT) and Dollar General (NYSE: DG), among others.
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