Nominal Expenditures Increase, but it is Still Too Low!

Final Sales of Domestic Product for the fourth quarter of 2009 were $14,503.4 billion. This was a 2.9 percent annual rate of increase from the $14,398.7 billion level in the 3rd quarter of 2009. In my view, this is nearly the ideal growth rate (3 percent,) but the level remains much too low.

Currently, nominal expenditure, as measured by Final Sales of Domestic Product, is approximately 1/2 of a percent less than its peak of $14,583.7 billion reached in the third quarter of 2008.

Looking that the 5.4 percent trend growth path for nominal expenditures during the Great Moderation, the current level is 10.38 percent below the $16,089 billion that is the current value of that growth path. This is an increase in the gap from last quarter, which was 9.74 percent. (This is slightly higher than the figures I was posting earlier this week, I suppose I was still using one of the prior vintages of third quarter 2009 Final Sales of Domestic Product.)

If the Fed targets nominal expenditure to return to its trend growth path one year from now, that is, the first quarter 2011, the target for that quarter remains $17,222 billion. That implies an 18.7 percent increase in nominal expenditure from the fourth quarter of 2009.

A modified growth path, shifting to noninflationary 3 percent growth rate beginning in the third quarter of 2008, leaves a shortfall of 7.3 percent, virtually unchanged from last quarter.

If the Fed targets nominal expenditure to return to this adjusted noninflationary growth path, the target for nominal expenditure in the first quarter 2011 remains $16,202 billion. That would be an 11.7 percent increase from the fourth quarter of 2009.