Tuesday, July 31, 2012
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Bad news on the economic front last week when the Commerce Department released Gross Domestic Product (GDP) preliminary figures for second quarter 2012. The advance estimate showed a 1.5 percent increase over first quarter numbers.
This advance number is subject to further revision by the Bureau of Economic Analysis. Actual GDP will not be available until August 29, 2012.
Preliminary numbers for first quarter 2012 were estimated in April at 2.2 percent, and later revised to 2.0 percent.
A country's wealth is measured by its GDP. It's the market value of all goods and services produced within its borders in a year. First developed by Simon Kuznets for a U.S. Congress report in 1934, it became the benchmark for measuring a country's economy in 1944.
Its calculation is complex. It was devised for the government, after all. Each category included lists almost as many exceptions as it does examples. To put it in a nutshell, GDP is the sum of consumption, investment, government spending and net exports.
Consumption includes durable goods, non-durable goods and services. Food, rent, gasoline and medical expenses count. Purchase of a new home is excluded.
Investment could mean a business buying new equipment, software or machinery. It includes the new home eliminated from the consumption category. But it excludes the exchange of existing assets. Buying stocks or bonds is not considered investment for this purpose.
Government spending is the total spent on final goods and services along with the salaries of public servants. But not social security or unemployment benefits.
Subtract gross imports from gross exports to determine net exports. This removes foreign supply from the formula.
So what does this really mean and why is it so important?
It means that economic recovery is moving slower than anticipated. Economists estimate we need GDP to hover around 3 percent to spur job growth and put a dent in unemployment.
Problems in Europe contribute to slowed growth here. Europe is a major export market for the U.S.
According to economist Christina Romer, real GDP per capita in American grew 0.58 percent a year from 1800-1840; 1.44 percent from 1840-1880; 1.78 percent from 1880-1920; 1.68 percent from 1920-1960, and 1.82 percent from 1960-1991. We not only grew richer, but at an increasing rate.
The 1990s saw very few quarters below the 3 percent mark, with 2nd quarter 1996 and first quarter 1999 both reaching 7.1 percent. It spiked to a high of 8 percent in 2000.
The bottom fell out during the recession, to hit negative numbers five quarters in 2008-2009. First quarter 2009 saw a low of -8.9 percent.
Economic growth since the end of the recession has been weak. What will it take to spur this economy?
American business is floundering. Faced with an uncertain tax picture, exorbitant employee healthcare costs and burdensome regulations, many companies cannot afford the research and develop costs to launch new products that will excite the public.
When jobs are scarce, people have to become creative to keep a roof over their head and feed their family. The resourceful become self-employed to control their own welfare.
Yet according to a recent report by the non-profit New America Foundation, the number of small businesses created in the U.S. has been declining since the 1970s. Entrepreneurial spirit is being snuffed out by big box retailers, over regulation and lack of available funding.
The little guy just can't compete in a retail world where Costco, Walgreens or Amazon can sell product cheaper than he can buy it from the manufacturer. Volume dictates your purchase price.
Licensing requirements to become a beautician are more stringent than to become an EMT in many states. They're designed to restrict competition rather than focus on public welfare concerns.
The Small Business Association (SBA) has several loan programs available. That is, for those that can sift through the 1,100 pages devoted to merely defining who exactly qualifies for which loan type.
With a presidential campaign underway, we won't find resolution anytime soon. Candidates are trying to win votes right now, not address problems.
We can only hope our leaders wake up to the stranglehold on American business. And make economic recovery a priority once all the votes are counted.
Ok, so the summer is rolling along nicely... sunshine, warm days, swimming, picnics and barbeques. What could be better? Well, I don't want to burst your bubble, and I know as I write this that kids everywhere will be groaning, but can we talk school for a moment?
Yes, I know, I am sorry, but it's not too early to start thinking about back-to-school. Hey, back-to-school can be fun too! New clothes, new school supplies, greeting new and old friends.
Unfortunately though, there are many kids in communities throughout southern New Jersey that can only look forward to greeting new and old friends; kids whose parents cannot afford to buy them new clothes or new school supplies. This is what I want to take a moment to discuss. Helping disadvantaged students in elementary, middle, or high school achieve educational success with the help of a program called Operation Backpack!
Operation Backpack is an initiative that provides support to disadvantaged students ages 4-19. By providing underprivileged children and teens with basic supplies at the start of the school year, Operation Backpack helps to set them on the path to academic achievement.
GCF Bank will be collecting donations for Operation Backpack from now through August 13th. Fill a backpack with any of the suggested school supplies from the list below and drop it off at any GCF Bank location. New backpacks and supplies only please!
You can donate backpacks, backpacks filled with school supplies, or just school supplies. Gift cards for school supplies or clothing are also welcome. Operation Backpack will take it all and pass it on to those in need!
Donations made at GCF Bank locations will go to help students in southern New Jersey areas. If you cannot drop off any supplies, but would still like to contribute, you can make a donation on the Center for Family Services website. There is a link on their home page to Operation Backpack and a link to Donate Online. Suggested donation amounts are listed below, but you can donate any amount you wish.
If you are not in southern New Jersey and would like to donate in your local area, do a search on the internet for Operation Backpack. Operation Backpack is active in many communities throughout the country.
If you cannot donate any supplies, consider donating your time. Operation Backpack needs volunteers the week of August 20th to consolidate, sort, and organize backpacks. Volunteers needed Monday, Tuesday, and possibly Wednesday and Thursday that week. To volunteer, email Anne Duklewski at firstname.lastname@example.org.
As a helpful reminder, GCF Bank has branches at these locations. Stop in and donate today!
Enjoy another reprint from the 2002 Archives of GCFlash:
P/E ratio (Price Earnings Ratio): Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings.
P/E is a widely used indicator of a stock's "value." Some investors look for stocks with low P/E's relative to their industry peers as an indicator that a stock is "underpriced." The actual P/E is far less important than the relative level when compared to other similar companies in the same industry.
When I was in college, a P/E of say 25 times, indicated a stock was pricey. Much of that went out the window during the tech bubble, particularly in the NASDAQ system, as some glamour stocks touted unbelievable P/E ratios. In some cases, these companies were yet to have ANY EARNINGS, yet the stocks just climbed higher and higher in price as investors bet on future, yet unrealized earnings. A great deal of money was made and then lost in such stocks as Yahoo! and Priceline. Of course, if you buy a stock with a P/E of 30 times and it goes up to 60....
As an investor, the important thing to remember is to be wary of buying stocks with high P/E's (relative to peers), unless you have overwhelming other information which states the stocks value (and hence its price) will increase yet further.
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