Gross Domestic Product

Today, Goldman Sachs upped their expectations for the growth of the US economy. This now matches our perspective that at least initially in 2025, we expect that the economy will continue to be fairly strong based on a variety of economic factors.

Of higher concern for us is later in the year when we think there could very well be a rise in interest rates and headwinds for the overall economy because of tariffs. While tax cuts certainly will stimulate the economy, it's uncertain how tariffs will affect the price of goods; this might cause a Federal Reserve to take action to raise rates.

Suffice it to say, we are not surprised by this changing outlook as this has been our basic thesis for the last six months. We invested portfolios accordingly and it's another reason why we have not taken dramatic action to reduce risk assets. We continue to be cautious, but we are keeping in mind that there are growth opportunities of the economy is moving along at a reasonable pace.

GDP is the best measure of how the economy is performing. A recent posting outlined this economic concept.

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"Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic health of a country or region. Several national and international economic organizations maintain definitions of GDP, such as the OECD and the International Monetary Fund.

The ratio of GDP to the total population of the region is the GDP per capita and can approximate a concept of a standard of living. Nominal GDP does not reflect differences in the cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy.

GDP is often used as a metric for international comparisons as well as a broad measure of economic progress. It is often considered to be the world's most powerful statistical indicator of national development and progress. However, critics of the growth imperative often argue that GDP measures were never intended to measure progress, and leave out key other externalities, such as resource extraction, environmental impact and unpaid domestic work. Alternative economic indicators such as doughnut economics use other measures, such as the Human Development Index or Better Life Index, as better approaches to measuring the effect of the economy on human development and well being.”

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Source: https://en.wikipedia.org/wiki/Gross_domestic_product

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Lastly, understanding GDP and its components can provide valuable insights into the economic trends and health of an economy.

Chart Source: 
https://www.thebalancemoney.com/what-is-gdp-definition-of-gross-domestic-product-3306038

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