One of the reasons I like Brian Wesbury’s approach to economic data is his more detailed parsing of the various components which are often ignored by the main stream crowd. He is the only economist known for separating the Private vs. Government components of US GDP. I have performed a similar analysis in the charts below in which Chart 1 presents GDPxFed Spending vs. Fed Spending YoY Rate over the period of Jan 1960-Present and Chart 2 adds GDP to GDPxFed Spending vs. Fed Spending YoY Rate over the period of Jan 2000-Present such that one can see our current situation with greater detail.
Lee Ainslie's Maverick Capital had a difficult third quarter, although many hedge funds did. The quarter ended with the S&P 500's worst month since the beginning of the COVID pandemic. Q3 2021 hedge fund letters, conferences and more Maverick fund returns Maverick USA was down 11.6% for the third quarter, bringing its year-to-date return to Read More
Looking at Chart 1 it should be obvious that Federal Spending growth spikes during periods of weakness in GDPxFed Spending (Private GDP component). It should also be obvious that after these spikes, Federal Spending growth subsides dramatically.
In Chart 2, GDP is compared to the Private and Government components over the of Jan 2000-Present to reveal current trends. What should be clear is that the Private economy is doing much better than many believe having hit 5.2% YoY (Year over Year) growth as of Dec 2012 while Government Spending showed a negative -2.8% YoY growth. This is good!
Our economy is much better than most believe and is behaving as it has always behaved in the past regardless of the continuing “Doom and Gloom” forecasting which permeates the media. Business Cycle Value Investors know that the best knowledge one can have is to parse the details. Rather than only looking at the “Forest”, Value Investors also look at the “Trees”. The Private GDP component is looking quite positive! It is the Private component which the stock market represents. The stock market should be much higher with the good news that we are seeing by this analysis. We should also rejoice that the Government component which is much less productive is becoming less of a drag on the overall economy.