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2.6% GDP: A Closer Look

There is plenty of surface noise to rattle investors' nerves. The solution to this dilemma is digging deeper.

President of 1DB Asset Management

I am the President of 1DB Asset Management a boutique money management and investment brokerage firm in Palm Beach County, Florida. I publish a weekly blog at www.1DB.com, titled “Market Minute.” I also manage a private equity fund. I am an active partner in New World Angels where we actively fund start-up companies in Florida. I am an avid investor. Recreationally, I participate in endurance sports: Ironman triathlons, Ultra-marathons, mountain climbing. For leisure I enjoy reading, researching and writing.
I am the President of 1DB Asset Management a boutique money management and investment brokerage firm in Palm Beach County, Florida. I publish a weekly blog at www.1DB.com, titled “Market Minute.” I also manage a private equity fund. I am an active partner in New World Angels where we actively fund start-up companies in Florida. I am an avid investor. Recreationally, I participate in endurance sports: Ironman triathlons, Ultra-marathons, mountain climbing. For leisure I enjoy reading, researching and writing.

Real gross domestic product (GDP) grew at a 2.6% annualized
rate in the second quarter of 2017. Nominal GDP (unadjusted for inflation)
during this period grew at 3.6%: both figures were considerably above their 10
year averages of 1.5% and 3.0% respectively, as illustrated below. The GDP
figure is considered the most important economic indicator.

Professionals,
pundits, market soothsayers, and the like create quite a stir about our country’s growth rate. They ask, “Is the economy growing fast enough? Is the
trajectory sustainable? How will we expand jobs without faster growth? What
about our national debt?” These are just a few of many headlines clamoring about
the most recent GDP report.

Certainly, there is plenty of surface noise to rattle investors’ nerves. The solution to this dilemma is digging deeper, i.e. below
the media static and into the numbers. Take a look at the following pie charts.
The first chart breaks down the four major segments of the GDP. At first glance,
which areas would you be interested in allocating some of your money? There are
325 million people in the U.S., and these consumers are the supermajority of
GDP growth.

The majority of the second
quarter’s GDP growth came from consumer spending. Take a look at the
consumer spending pie chart and notice the breakdown: 65% of all consumer spending
is for services such as restaurants, entertainment, tourism, accounting, medical
and hairstyling; 14% is for long lasting durable goods like autos, furniture,
washing machines and dryers; and 22% of consumer spending goes toward
nondurable goods that last a relatively short period of time: fresh vegetables,
food, clothes, beer, office supplies and personal products. These are only a
few of the vast goods and services available for consumer consumption.

The
facts speak loud and clear; the service sector is an economic locomotive and for long term investors it’s an area worth taking a closer look.

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