We’re talking about the GDP here. GDP, or Gross Domestic Product, is the total of all goods and services for a defined economic unit – usually a state, country or region. Alan Greenspan, one of my favorite economists, has determined GDP per dollar is getting lighter and shorter lived. So what does this mean?
Several decades ago our GDP was comprised of things like steam locomotives and industrial facilities; today it includes software and services. As the proportion of software, the average weight of GDP declines. (How many Tweets fit in a McDonald’s bag? Would you like some likes with that?) Similarly, locomotives and factories lasted a long time but internet news updates are gone tomorrow.
In good times this all works great. (Hey, I’m gonna get a backrub and increase the GDP!) The question is what portion of this lighter, more temporal GDP endures throughout economic cycles. And this brings us to the murky boundary between needs and wants.
Needs are warmth, water, shelter and food. (If you don’t buy that definition, I invite you to backpack a mere three days with me. I WILL keep you alive.) Wants are anything else, and it is this reality which is now slowing our economy. Add to this the rising prices of commodities driving up the real cost of warmth (energy) and food (grain, corn) and wants are even more crowded out in the marketplace.
So what is the solution? It appears the precursor signals are already showing in economic reports. First, our currency has to decline. For those who have been hiding under a rock the past few years, this has already occurred and may likely continue. Secondly, manufacturing must move back into the US. Why? Because we are currently using our wealth for two things – ephemeral, short lived items and imported manufactured goods. If this continues ad infinitum, the US expends all of its resources on imports. The good news is the manufacturing index unexpectedly increased last month. While the overall economy may not seem to be robust enough to drive this increase, I believe the declining dollar is beginning to pull manufacturing back onshore.
And by now you are asking “What does this have to do with housing?” The answer is twofold. First, a real increase in GDP will stimulate new household formation or relocation. Pent up demand for new household formation already exists; all it will take is enough available purchasing power to release this demand. Relocation will occur as people move to the sites of new manufacturing.
Secondly, this stimulation of housing will create a reinforcing effect for US manufacturing. Much of the materials used in a home – lumber, shingles, etc. -- are produced in the US. Granted my toilet was made in Brazil, but ….
Guess I will have to wait for Greenspan’s next analysis for confirmation of the trend.
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