It’s hard to understand the economy in general, because there’s so much data and it’s so often taken out of context.
We will narrow down only the most important indicators of economic development and examine real data published by government agencies to get context on these metrics.
Macroeconomic data can be useful in making reasonable projections of future growth for companies. It can help investors decide whether their expectations are overly optimistic, or reasonable.
Hopefully you find these explanations and data tables to be clear, organized, and a valuable resource.
It can provide great context on the sensational headlines we see about economic developments everyday. Here’s what the U.S has actually been doing lately.
We will examine the following metrics:
- GDP, or Gross Domestic Product
- U.S. Population
- U.S. Consumer Spending
- U.S. Disposable Income
- Number of U.S. Businesses
- U.S. Corporate Profits After Tax
- Gross Private Domestic Investment
- U.S. Government Spending
- Investor Takeaway
GDP, or Gross Domestic Product
If wanting to understand the top economic indicators, it makes sense to start with GDP, or Gross Domestic Product.
You can think of GDP as the income a country generates within its economy. The equation for calculating a country’s GDP is the following:
GDP = C + G + I + NX
Where,
C = Consumption
G = Government Spending
I = Investment
NX = Net exports
Each category of GDP plays an important role in the overall economy of a country. But, the category driving growth can differ between country, or even over time within a country.
Many economists and investors will look to GDP as a signal for how much growth to expect in profits. This can be used to project future returns in the stock market.
But, economic indicators like GDP are backwards looking, often months or even more than 1 year until official release. Keep in mind that many stock prices are determined as estimates on the future rather than what’s happened in the past. We have to take all data with a grain of salt.
Here’s the data with the last 25+ years of GDP (1994-2022) for the United States.
U.S. GDP
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $7,455.29 | |
| 1995 | $7,772.59 | 4.3% |
| 1996 | $8,259.77 | 6.3% |
| 1997 | $8,765.91 | 6.1% |
| 1998 | $9,296.99 | 6.0% |
| 1999 | $9,899.38 | 6.5% |
| 2000 | $10,439.03 | 5.5% |
| 2001 | $10,660.29 | 2.1% |
| 2002 | $11,071.46 | 3.9% |
| 2003 | $11,769.28 | 6.3% |
| 2004 | $12,522.43 | 6.4% |
| 2005 | $13,332.32 | 6.5% |
| 2006 | $14,037.23 | 5.3% |
| 2007 | $14,681.50 | 4.6% |
| 2008 | $14,559.54 | -0.8% |
| 2009 | $14,628.02 | 0.5% |
| 2010 | $15,240.84 | 4.2% |
| 2011 | $15,796.46 | 3.6% |
| 2012 | $16,358.86 | 3.6% |
| 2013 | $17,083.14 | 4.4% |
| 2014 | $17,849.91 | 4.5% |
| 2015 | $18,378.80 | 3.0% |
| 2016 | $19,032.58 | 3.6% |
| 2017 | $19,937.96 | 4.8% |
| 2018 | $20,909.85 | 4.9% |
| 2019 | $21,747.39 | 4.0% |
| 2020 | $21,704.71 | -0.2% |
| 2021 | $24,349.12 | 12.2% |
| AVERAGE | 4.5% | |
| MEDIAN | 4.5% |
Note that economic growth in the U.S. slowed during 2010-2020. Interest rates were very low during that period.
This U.S. GDP data represents “nominal GDP,” not to be confused with “real GDP.”
Oftentimes economists and journalists will also quote “real GDP,” which takes the nominal GDP above and adjusts it for inflation.
From 1994-2019, real GDP growth in the U.S. has averaged less than 1%- 2%. Because this figure is inflation adjusted, it makes the actual growth of the economy sound lower than reality. This is because stock market prices are not adjusted for inflation, while “real” GDP is.
Note that over the long term, inflation in the U.S. has averaged around 2%- 3%. It has played a critical role in adding to overall GDP over time.
Keep that in mind if using economic data for investment research.
U.S. Population
Next, let’s look at a key variable in economic development and GDP growth: population trends.
If we look at the basics of an economy, it makes sense that more people should generally lead to higher economic growth.
More people in a country should mean more entrepreneurs to create jobs and more customers to support businesses and work in those businesses. It’s a virtuous, repeating cycle.
So, let’s provide context on the last 25+ years of GDP growth with corresponding growth in the overall population. This chart shows those numbers.
U.S. Population
| Year | Number | YOY% |
|---|---|---|
| 1994 | 263,126,000 | |
| 1995 | 266,278,000 | 1.2% |
| 1996 | 269,394,000 | 1.2% |
| 1997 | 272,657,000 | 1.2% |
| 1998 | 275,854,000 | 1.2% |
| 1999 | 279,040,000 | 1.2% |
| 2000 | 282,162,411 | 1.1% |
| 2001 | 284,968,955 | 1.0% |
| 2002 | 287,625,193 | 0.9% |
| 2003 | 290,107,933 | 0.9% |
| 2004 | 292,805,298 | 0.9% |
| 2005 | 295,516,599 | 0.9% |
| 2006 | 298,379,912 | 1.0% |
| 2007 | 301,231,207 | 1.0% |
| 2008 | 304,093,966 | 1.0% |
| 2009 | 306,771,529 | 0.9% |
| 2010 | 309,321,666 | 0.8% |
| 2011 | 311,556,874 | 0.7% |
| 2012 | 313,830,990 | 0.7% |
| 2013 | 315,993,715 | 0.7% |
| 2014 | 318,301,008 | 0.7% |
| 2015 | 320,635,163 | 0.7% |
| 2016 | 322,941,311 | 0.7% |
| 2017 | 324,985,539 | 0.6% |
| 2018 | 326,687,501 | 0.5% |
| 2019 | 328,239,523 | 0.5% |
| 2020 | 331,501,080 | 1.0% |
| 2021 | 331,893,745 | 0.1% |
| AVERAGE | 0.9% | |
| MEDIAN | 0.9% |
As we can see, both the median and average values over the last 25+ years are the same at 0.9%. Like with GDP, population growth slowed from 2010-2020. This would generally be a negative thing for the economy if that trend continued.
Though birth rates have been slowing in developed Western countries, that is not the only factor to influence population growth. Today’s population growth can be explained by things like:
- Longer life expectancy
- Immigration
- Birth rates
Positive economic development and growth can lead to increases in all 3 of those categories, which can, again, be a virtuous loop for an economy. Prosperity creates more prosperity.
U.S. Consumer Spending
Next, let’s look at Consumer Spending, which has long been a huge driver for the U.S. economy.
It’s pretty well known that the U.S. is a major service economy, especially after having exported manufacturing to countries like China and Mexico. Since the U.S. is a “net importer,” which means that we import more goods and services from other countries than we export, we rely on consumer spending to drive economic growth within the country. Some of that spills over to other countries as well.
Since spending –> business profits –> jobs –> spending, consumer spending can arguably be the most important economic development indicator to monitor. This is especially true in a country like the U.S., where a majority of the GDP equation comes from consumer spending.
Here’s the data for U.S. consumer spending over the last 25+ years:
U.S. Consumer Spending
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $4,821.60 | |
| 1995 | $5,097.50 | 5.3% |
| 1996 | $5,378.60 | 5.5% |
| 1997 | $5,692.10 | 5.8% |
| 1998 | $6,070.50 | 6.6% |
| 1999 | $6,538.70 | 7.7% |
| 2000 | $6,945.70 | 6.2% |
| 2001 | $7,147.70 | 2.9% |
| 2002 | $7,512.80 | 5.1% |
| 2003 | $7,929.20 | 5.5% |
| 2004 | $8,481.50 | 7.0% |
| 2005 | $8,969.60 | 5.8% |
| 2006 | $9,469.00 | 5.6% |
| 2007 | $9,908.40 | 4.6% |
| 2008 | $9,730.70 | -1.8% |
| 2009 | $9,998.90 | 2.8% |
| 2010 | $10,392.10 | 3.9% |
| 2011 | $10,772.20 | 3.7% |
| 2012 | $11,140.50 | 3.4% |
| 2013 | $11,517.90 | 3.4% |
| 2014 | $12,065.00 | 4.7% |
| 2015 | $12,482.40 | 3.5% |
| 2016 | $13,058.00 | 4.6% |
| 2017 | $13,690.90 | 4.8% |
| 2018 | $14,130.80 | 3.2% |
| 2019 | $14,796.30 | 4.7% |
| 2020 | $14,571.10 | -1.5% |
| 2021 | $16,522.40 | 13.4% |
| AVERAGE | 4.7% | |
| MEDIAN | 4.7% |
Notice how spending has crossed above $16 trillion, which compared to GDP over $24 trillion is a significant portion.
Consumer spending growth is slightly above GDP growth numbers, at an average and median of 4.7% per year. This implies that consumers could continue driving economic growth forward, as long incomes grow alongside spending.
As we’ll see next, that appears to be the case for the United States. The consumer is actually still very healthy despite much of the negativity in the media in recent years.
U.S. Disposable Income
Disposable income, or DPI, is defined essentially as after-income. The official formula for DPI is the following:
DPI = Gross Annual Income – (Payable Taxes + Other Deductions)
Disposable income should not be confused with “discretionary income,” which includes essentials such as rent, insurance, food, transportation and other essential living expenses.
As you can imagine, there seems to be wide variability and possible interpretations of what constitutes essential expenses. So, I think DPI is a much easier and more reliable indicator to watch and track for an economy’s development.
Some may argue that higher living expenses mean less consumer spending at places like stores and restaurants. But if you think about it, it’s really not less spending—it’s just spending redirected elsewhere.
For example: if rents and/or mortgages become much more expensive relative to other countries (or even its own history), that’s still money that gets spent to landlords and banks (through mortgage interest). That’s still money that flows into the economy through one way or the other.
Alright, enough arguments about income.
Here’s where the U.S. DPI, or disposable income, has been officially recorded over the last 25+ years:
U.S. Disposable Income
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $5,406.00 | |
| 1995 | $5,651.70 | 4.5% |
| 1996 | $5,981.00 | 5.8% |
| 1997 | $6,342.10 | 6.0% |
| 1998 | $6,717.30 | 5.9% |
| 1999 | $7,121.80 | 6.0% |
| 2000 | $7,579.10 | 6.4% |
| 2001 | $7,801.70 | 2.9% |
| 2002 | $8,250.30 | 5.8% |
| 2003 | $8,697.00 | 5.4% |
| 2004 | $9,455.10 | 8.7% |
| 2005 | $9,685.40 | 2.4% |
| 2006 | $10,251.80 | 5.8% |
| 2007 | $10,717.00 | 4.5% |
| 2008 | $10,809.10 | 0.9% |
| 2009 | $11,046.90 | 2.2% |
| 2010 | $11,600.00 | 5.0% |
| 2011 | $12,093.00 | 4.3% |
| 2012 | $13,092.90 | 8.3% |
| 2013 | $12,720.80 | -2.8% |
| 2014 | $13,539.00 | 6.4% |
| 2015 | $13,965.50 | 3.2% |
| 2016 | $14,447.90 | 3.5% |
| 2017 | $15,214.10 | 5.3% |
| 2018 | $16,165.80 | 6.3% |
| 2019 | $16,567.80 | 2.5% |
| 2020 | $17,420.30 | 5.1% |
| 2021 | $18,396.20 | 5.6% |
| AVERAGE | 4.7% | |
| MEDIAN | 5.3% |
Note how close that the average and median values for DPI are compared to U.S. Consumer Spending. With an average of 4.6% growth per year and 5.3% median, these are very close in-line.
Also, I find it interesting that from 2010-2019, DPI has actually grown more in relation to consumer spending. It suggests an average consumer that is becoming more financially resilient rather than less.
With an average of 4.2% growth and median of 4.6% from 2010-2019 in U.S. disposable income, consumer spending over the same time period has only grown an average of 4.0% and a median of 3.8%.
Whether these extra savings convert to better economic growth in the future remains to be seen.
Number of U.S. Businesses
Now we will take a turn to the corporate side, which is my favorite part of the indicators of economic development (in big part because I am an investor).
Like we did with the U.S. consumer, I think it’s prudent to start at the absolute base level first. That base level is in the number of businesses. After all, if there are more businesses in general, that should mean more jobs and more chances of capturing profit from consumer spending.
At the very least, knowing the growth (or lack of) in the overall number of businesses can help when making estimates for the future profitability of companies who live in the B2B (business-to-business) space, for example.
The following chart shows the growth in the number of U.S. businesses from 1993-2022:
U.S. Businesses
| Year | Number | YOY% |
|---|---|---|
| 1993 | 4,304,000 | |
| 1994 | 4,377,000 | 1.7% |
| 1995 | 4,460,000 | 1.9% |
| 1996 | 4,505,000 | 1.0% |
| 1997 | 4,588,000 | 1.8% |
| 1998 | 4,619,000 | 0.7% |
| 1999 | 4,695,000 | 1.6% |
| 2000 | 4,736,000 | 0.9% |
| 2001 | 4,751,000 | 0.3% |
| 2002 | 4,764,000 | 0.3% |
| 2003 | 4,813,000 | 1.0% |
| 2004 | 4,880,000 | 1.4% |
| 2005 | 4,948,000 | 1.4% |
| 2006 | 5,061,000 | 2.3% |
| 2007 | 5,103,000 | 0.8% |
| 2008 | 5,079,000 | -0.5% |
| 2009 | 4,912,000 | -3.3% |
| 2010 | 4,817,000 | -1.9% |
| 2011 | 4,851,000 | 0.7% |
| 2012 | 4,893,000 | 0.9% |
| 2013 | 4,937,000 | 0.9% |
| 2014 | 4,998,000 | 1.2% |
| 2015 | 5,059,000 | 1.2% |
| 2016 | 5,134,000 | 1.5% |
| 2017 | 5,189,000 | 1.1% |
| 2018 | 5,224,000 | 0.7% |
| 2019 | 5,273,000 | 0.9% |
| 2020 | 5,269,000 | -0.1% |
| 2021 | 5,363,000 | 1.8% |
| 2022 | 5,536,000 | 3.2% |
| AVERAGE | 0.9% | |
| MEDIAN | 1.0% |
America has always been well known for their entrepreneurial culture; it’s interesting to see how closely the growth in the number of businesses has tracked population growth in the country.
U.S. Corporate Profits After Tax
Next in line would be corporate profits, which might be the most important indicator of economic development for investors. After all, one of the best investors of all-time, Peter Lynch, once said:
“I can’t say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results.”
Peter Lynch
So, increases in corporate profits should directly lead to stock market gains over the long run.
Notice how corporate profits (after tax) have been much more volatile compared to the other major economic indicators:
U.S. Corporate Profits After Tax
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $453.10 | |
| 1995 | $505.68 | 11.6% |
| 1996 | $534.89 | 5.8% |
| 1997 | $589.21 | 10.2% |
| 1998 | $490.49 | -16.8% |
| 1999 | $556.25 | 13.4% |
| 2000 | $491.81 | -11.6% |
| 2001 | $489.45 | -0.5% |
| 2002 | $725.11 | 48.1% |
| 2003 | $816.61 | 12.6% |
| 2004 | $1,010.65 | 23.8% |
| 2005 | $1,363.54 | 34.9% |
| 2006 | $1,398.20 | 2.5% |
| 2007 | $1,368.06 | -2.2% |
| 2008 | $721.41 | -47.3% |
| 2009 | $1,462.94 | 102.8% |
| 2010 | $1,599.16 | 9.3% |
| 2011 | $1,617.10 | 1.1% |
| 2012 | $1,785.96 | 10.4% |
| 2013 | $1,838.84 | 3.0% |
| 2014 | $1,879.11 | 2.2% |
| 2015 | $1,635.30 | -13.0% |
| 2016 | $1,805.96 | 10.4% |
| 2017 | $1,768.63 | -2.1% |
| 2018 | $1,899.59 | 7.4% |
| 2019 | $2,000.74 | 5.3% |
| 2020 | $2,291.75 | 14.5% |
| 2021 | $2,760.78 | 20.5% |
| AVERAGE | 9.5% | |
| MEDIAN | 7.4% |
The average growth of 9.5% doesn’t accurately explain actual growth for U.S. Corporate Profits After Tax, in my opinion.
You can see that volatility in numbers can skew the averages. Taking the average of a group of values can be misrepresentative because it only takes one extreme data point to disproportionately drag the overall average up or down.
In this case, corporate profits dropped from $1.3 trillion in 2007 to $721 billion in 2008, only to rebound back to $1.4 trillion in 2009. The average of those two growth values, -47.3% and 102.8%, comes out to 27.8%, but the actual growth (from $1.3 trillion to $1.4 trillion over 2 years) is closer to 7%- 8%.
So, a calculation of the median of growth numbers gives us a better read on the true growth over a longer period of time. In this case, that is 7.4% for corporate profits over the last 25+ years.
Like with the number of businesses vs people, it seems that corporate profits have been higher than consumer spending and could continue this way in the future. If that were the case, it would be another bullish tailwind for those companies who sell goods and services B2B.
But, the slowdown in corporate profits from 2010-2019 seems to be greater relative to its 25+ year history than it was for consumer spending. Also, if the corporate tax rate increases again in the future, this could push profits lower for corporations. That could lower their ability to spend on B2B services through things like capital expenditures.
Speaking of…
Gross Private Domestic Investment
Businesses can spend just like consumers can, and this can drive economic development in the exact same way.
One way that this transaction is tracked is through an indicator called Gross private domestic investment.
According to this article, Gross private domestic investment includes replacement purchases (maintenance capex) plus net additions to capital assets (growth capex) and investments in inventories (changes in working capital).
This spending by businesses flows through the economy just like consumer spending would. It can be a critical part of GDP for a country (like it was for the U.S. right before the Great Depression).
For the United States, Gross private domestic investment over the last 25+ years has been recorded as the following:
Gross Private Domestic Investment
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $985.21 | |
| 1995 | $1,011.02 | 2.6% |
| 1996 | $1,122.35 | 11.0% |
| 1997 | $1,253.76 | 11.7% |
| 1998 | $1,344.36 | 7.2% |
| 1999 | $1,474.08 | 9.6% |
| 2000 | $1,563.71 | 6.1% |
| 2001 | $1,311.67 | -16.1% |
| 2002 | $1,348.72 | 2.8% |
| 2003 | $1,439.50 | 6.7% |
| 2004 | $1,601.10 | 11.2% |
| 2005 | $1,760.06 | 9.9% |
| 2006 | $1,874.54 | 6.5% |
| 2007 | $1,983.09 | 5.8% |
| 2008 | $1,785.17 | -10.0% |
| 2009 | $1,531.19 | -14.2% |
| 2010 | $1,784.45 | 16.5% |
| 2011 | $2,020.72 | 13.2% |
| 2012 | $2,088.14 | 3.3% |
| 2013 | $2,306.81 | 10.5% |
| 2014 | $2,477.64 | 7.4% |
| 2015 | $2,475.28 | -0.1% |
| 2016 | $2,477.63 | 0.1% |
| 2017 | $2,599.34 | 4.9% |
| 2018 | $2,857.66 | 9.9% |
| 2019 | $2,838.55 | -0.7% |
| 2020 | $2,865.62 | 1.0% |
| 2021 | $3,302.55 | 15.2% |
| AVERAGE | 4.9% | |
| MEDIAN | 6.5% |
Again, values on the extreme end of the spectrum have influenced the average, this time on the lower side. The median for private domestic investment was 6.5%, with a slowdown not as pronounced from 2010-2019 of 6.2%.
Notice how 2010-2019 growth figures have been much higher than corporate profits themselves. It suggests that business spending could have been fueled, at least in part, by debt.
Corporate debt is one of those indicators that the media loves to scream about, and it can be a problem for the companies with a lot of it. However, note how private (business) investment was only around $3.3 trillion in 2021, compared to consumer spending at $16.5 trillion.
Less corporate investment might not reduce GDP growth much, though it could mean less jobs and lower consumer spending.
As it is with all indicators of economic development, it pays to simply observe these metrics rather than try to predict them.
Economic growth can spring from anywhere. Global economies are so interconnected today, and impossible to predict.
U.S. Government Spending
We could go on and on with economic indicators, but the last major indicator I’d like to discuss is U.S. Government Spending.
This metric particularly surprised me because its value was actually much higher than business investment (gross private domestic investment).
U.S. Government Spending
| Year | in Billions | YOY% |
|---|---|---|
| 1994 | $2,544.70 | |
| 1995 | $2,615.40 | 2.8% |
| 1996 | $2,720.88 | 4.0% |
| 1997 | $2,822.36 | 3.7% |
| 1998 | $2,909.22 | 3.1% |
| 1999 | $3,087.39 | 6.1% |
| 2000 | $3,207.85 | 3.9% |
| 2001 | $3,433.59 | 7.0% |
| 2002 | $3,683.36 | 7.3% |
| 2003 | $3,872.83 | 5.1% |
| 2004 | $4,095.64 | 5.8% |
| 2005 | $4,414.67 | 7.8% |
| 2006 | $4,545.89 | 3.0% |
| 2007 | $4,931.56 | 8.5% |
| 2008 | $5,419.18 | 9.9% |
| 2009 | $5,713.38 | 5.4% |
| 2010 | $5,839.20 | 2.2% |
| 2011 | $5,872.60 | 0.6% |
| 2012 | $5,901.61 | 0.5% |
| 2013 | $5,868.24 | -0.6% |
| 2014 | $6,066.56 | 3.4% |
| 2015 | $6,245.61 | 3.0% |
| 2016 | $6,457.13 | 3.4% |
| 2017 | $6,699.85 | 3.8% |
| 2018 | $7,065.45 | 5.5% |
| 2019 | $7,391.32 | 4.6% |
| 2020 | $8,459.44 | 14.5% |
| 2021 | $8,720.10 | 3.1% |
| AVERAGE | 4.7% | |
| MEDIAN | 3.9% |
Notice how government spending in 2021 amounted to $8.7 trillion, compared to $24.3 trillion in GDP, $16.5 trillion in consumer spending, and $3.3 trillion in Gross domestic private investment.
That’s also a significant component, and was also fueled in part by government debt (albeit at relatively low interest rates).
Government spending can lead to corporate profits through many avenues. It can go to companies involved with infrastructure, software development, aerospace, or other goods and services.
Note that spending like Social Security does not get included in this calculation (it’s counted as a “transfer payment” instead). But, it does eventually get counted in Consumer Spending if spent on goods and services.
It’s interesting to note that government spending slowed substantially in the 2010’s. It represented an almost -20% drop and is much higher than the drop in GDP over the same time period.
Rather than debate where government spending could go, I think it’s important just to note where it’s been.
Investor Takeaway
Let’s wrap up with a practical application of macroeconomic data for investors.
As a critical part of assessing a company’s valuation with a DCF model, you must estimate future growth of cash flows.
This economic data can be a fantastic baseline level for those projections. It can help you with a “heat check,” to make sure your estimates of the future are not overly optimistic.
Example: construction company
Let’s say we have a construction company that gets 100% of its revenues from U.S. government contracts for infrastructure projects. My growth estimate might be 6%, from these components:
Government spending = 3% Share Buybacks = 2% Market share growth = 1%
Using the simple government spending data we uncovered in this article, I can know how much historically the U.S. has grown their spending, and whether I believe it will be closer to the 10 year average, 25 year average, or higher or lower (depending on other analysis).
Investors can use logic like this to make top down analysis of the stocks they are looking to buy today.
