Nov - 12-19
Housing Market & GDP
In this newsletter we will review the state of the U.S. economy, by taking a closer look at the gross domestic product (GDP). You will learn that the economy resisted the pull of recession in the third quarter of 2019 and what role the residential housing market played.
Longest Expansions
We are experiencing the longest period of economic expansion on record. It began in June of 2009 and has lasted 124 months since. That is a period of well above 10 years. What an exciting time. Most expansions did not last nearly as long. See chartEconomic Expansions by Durationfor details.
We all know that an expansion is followed by a recession. It is defined as a decline in GDP over a period of at least two consecutive quarters, usually in conjunction with a rise in unemployment. Recessions are officially declared by a committee of experts at the National Bureau of Economic Research.
GDP Declining
The U.S. economy, one of the strongest and most resilient in the world, shrugged off the threat of a recession in the third quarter of 2019. Let us take a close look at the annualized GDP results by quarter, which indicate whether an economy is growing or not.
During the first quarter of 2019, the growth rate of the U.S. economy was 3.1%. This was much stronger than results at the same time in 2018. However, in the second and third quarters of 2019, the growth rates not only began to decline, but they also fell below the growth rates of 2018. Such a development is usually a reason to sound the alarm bells. See chart U.S. GDP Development by Quarter 2018 vs 2019 for details.
The reason why these consecutive drop in GDP growth were not considered a recession, is due of the strong labor market. Hiring is still strong and the unemployment rate, which is at 3.5%, remains extraordinarily low, according to the U.S. Bureau of Labor Statistics.
Housing Market to the Rescue
GDP is driven by four main components:
personal consumption
business investment (incl. residential housing)
government spending
net trade
The boost to the third-quarter GDP came from an increased investment in residential housing. The annualized growth rate jumped by 8.1 pts to reach a level of 5.1% between the second and third quarter in 2019.
In the same period, the growth rates for personal consumption and government spending decreased from 4.6% to 2.9% and 4.8% to 2.0%, respectively. The good news is that both categories remained at a positive level. The remaining business investment categories and net trade both had a negative effects on GDP growth.
The GDP upswing in the residential housing sector signals that the U.S. has an active and growing real estate market in which Americans are buying and selling homes. In this market, investors require funds in order to acquire, remodel and sell homes.
You have the opportunity to participate in this growing market by becoming a first deed lender. Let us introduce you to a form real estate investing that provides excellent security and a high rate of return.
