The first quarter of this year has left many economists and investors scratching their heads over how the U.S. economy has been doing and other economies around the world. Apparently the method in which economists at the Bureau of Economic Analysis use to determine the growth rate of the economy is faulty. They don’t take into account the economy’s seasonal ups and downs. This means a harsh winter which keeps would-be shoppers at home instead of shopping is ignored even though this is an important factor. If people are unable to go out and shop due to inclement weather then of course the economy may look worse, but the reality is people will make up for their lack of shopping in the next quarter.
A growing number of economists say there is a more reliable measure for measuring economic growth and the research conducted so far proves as much. This measure involves adding up and finding the total of each dollar spent across the entire economy. Additionally, since every dollar someone spends is a dollar of income for someone else, theoretically you can measure the size of the economy by combining everyone’s income. Then you can compare the two numbers, total income and total dollars spent and they should be equal. This alternative method is known as gross domestic income (GDI) and it says the U.S. economy grew 1.4% during the winter instead of contracting .7%; that’s a heck of a lot better news.
For investment companies it may definitely be a smart decision to continue taking into consideration both GDP and GDI when determining how to handle their assets. Investment companies can make a better decision if they know how the economy is actually doing and investors will have a better idea of whether each investment company’s stock is worth buying. For example, Waha Capital based in the UAE saw record first quarter profits in 2015 of 20%. Hussain Al Nowais, chairman of the company, says the firm’s investments are all doing well and with the U.S. economy and UAE economy continuing to grow the company will do fine.
Unfortunately, many investors are uncertain about the real status of the economy and many mistakenly believe Waha Capital’s profits are a purely a result of their shares in AerCap Holdings which has seen major growth over the last year and a half. Hussain Al Nowais has pointed out multiple times the company’s portfolio is quite diverse and the investments in other sectors of the economy have also been seeing positive growth. The most important challenge facing businesses in the coming couple of years is convincing investors and banks to provide lending and investment which allows them to grow in a healthy nature.