Understanding Growth, Domestic Product and Economic Growth
We rely on our Government to provide reliable information on the state of our Country’s financial condition. The primary measures of the health of our economy; Gross Domestic Product, Unemployment, Inflation, Population Growth and Economic growth.
Here are some quick ways to understand these numbers.
• Gross Domestic Product (GDP) is the goods and services produced by our economy.
• Unemployment is the percentage of the population representing those individuals that are not employed and seeking employment.
• Inflation is the increased cost of goods and services from one year to the next, based on the Consumer Confidence Board Standard.
• Population Growth percentage is the Increase in the Country’s population annual rate.
• Economic growth is the percentage increase in GDP from one year to the next.
An example of Inflation: if one bought $10,000 of goods and services in 2015, those goods and services would cost $10,270 with a 2.7% inflation rate.
An example of Economic Growth measured by Gross Domestic Product: if the total goods and services produced for 2015 were $10,000, with a 2% Economic Growth rate the total GDP for 2016 would be $10,200.
From these examples, it is clear that if the Inflation rate is greater that the Economic Growth Rate our economy has contracted by 0.7% in 2015 dollars.
Historical Calculation of the Unemployment Rate would have the number nearer to 10% than the published number.
To understand this claim, look at the historical labor participation rates compared to the current participation rate. Current unemployment numbers are calculated based on an assumption; if you have not found a Job is a set period of time you are no longer taking part in the labor market and therefore not counted as unemployed.
As with the Unemployment rate the other rates have been changed to create a false reality.
For the Inflation rate, refer you to The Consumer Confidence Board real inflation rate. The Government Inflation rate takes out data that it considers not relevant, but was included historically. When the two rates are compared, it is something like comparing apples and lemons.
Some of the items removed; Energy and Housing Costs.
A better way to evaluate the economy would be by using a formula that better represents reality. The published economic growth number, a percentage, of the percentage increase in the GDP, less the inflation rate and the percentage of population increase.
The GDP is a percentage of growth measured in Dollars of the Goods and Services of the Economy, as an example 2% (projected 2016 rate).
The real inflation rate projected by the Conferences Board of 2.7%. The other factor is the population growth, which is projected a 0.7%. If these numbers are correct, to discover the true growth rate of the economy in real terms is to subtract the inflation adjustment and the increase in the population from the GDP growth percentage (economic growth).
Inflated currency and an increase in the number of participants resets the growth rate to expansion growth; it is not economic growth. Any number less that the addition of these to statistics is not economic growth.
Which in this example is 2% GDP less 2.7% real inflation rate, less the expanded number of participants in the economy of 0.7%. This shows the true economy activity is a negative growth rate of 1.4%.