If you throw all the products we buy and the services we use in one basket, then add up the price tag, that's the Gross Domestic Product, which is the primary metric economists use to assess the economic health of a country or region.

The easy part of calculating GDP is the calculation itself: C+I+G+(X-M)=GDP. Got it? No? Well, add Consumption, Investment by companies, Government purchases, and then take the product of eXports (calling it 'E' would lack sexiness) minus iMports ('I' was taken). Viola! GDP.

Still don't get it? Well, knowing the components helps. Consumption is the biggest component, and it's a tally of the cost of all the goods and services we buy. Investment is what companies spend on the real assets they own, plus the value of the inventory that we haven't gobbled up through consumption. Government purchases are what the Feds pay money for (whether it be highways or fighter jets, though big social programs, like welfare, aren't counted). And then we calculate the difference between the goods and services we¿re sending to other countries and the stuff we're bringing in.

Good. That explains it, except there's a catch. Inflation has a habit of distorting the numbers, so economists talk about either Nominal GDP or Real GDP. In fact, Real GDP isn't necessarily "real" for most folks, since it takes any inflation out. Nominal GDP includes the effects of inflation. (There's something called the implicit price deflator which is a calculation using the two, but we'll spare you the details.)

So, now that we know GDP, why do we want to? Well, it's good to compare different markets. And watching the trend shows whether a given economy is growing (good), stagnating (not so good), or shrinking (very not so good). When GDP goes down two quarters in a row, we're officially in a recession.

For the record, GDP is released at the end of each month, with most reporting ¿preliminary¿ data for the previous month. But you won't get final GDP numbers for the fourth quarter of a year until the very end of the first quarter of the next year. After all, it's not an easy number to calculate.

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Wednesday, June 25, 2008

Three Reasons Why You Should Keep Your Truck

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Jennifer Openshaw

MarketWatch

NEW YORK--With gas approaching $4.50 a gallon and your 6,000-pound SUV using a lot of it, you may lose sight of the big picture.

Don't.

We all make bad investments. We buy stocks with a solid rationale and expectations, and then they take a hit. The company announces a horrible quarter, say, and our long-term view goes out the window. We can't resist the urge to sell.

Now, I take today's gas prices seriously. High energy costs are probably here to stay and it's time to adjust. But if you already have that Suburban or F-250, be careful. It doesn't necessarily mean it's time to sell.

You see, vehicles aren't really like stocks. The total cost depends on how you use them, and there are lots of costs -- not just the gas. Much higher transaction costs, for instance. So it's a more complex deal. Really, it's a matter of running the numbers.

Avoid the impulse

You bought your truck for a reason. To haul a family, to tow a boat, to run your business. Or, maybe you just liked the solid, safe feel. Whatever. It's yours.

Now, what happens if you sell it and buy a more fuel-efficient vehicle? You'll save on gas. But you'll still need your checkbook:

Soft market. Used trucks and SUVs are abundant now. Dealers are offering next to nothing. According to some reports, trade-in values have dropped $5,000 to $10,000 in a few months. So take that hit, plus the depreciation on the new car? No thanks. Sales tax, at least in some states. That's perhaps $800 to $1,500 on a compact car.

Financing costs. Just like those home-foreclosure horror stories, you may be underwater on your current vehicle and have to take a check to the closing. Then there's the $365 a month to pay on the new car ($15,000 loan, 8%, 48 months).

All to avoid $4.50 a gallon? Not so fast.

The real deal

Your SUV or truck, let's say it gets 15 mpg. At 12,000 miles a year, that's 800 gallons of gas a year, or $3,600 a year. Now $3,600 is a lot, but compared those other numbers? Hmmm. Now suppose you're considering downsizing to a 25 mpg car. That car uses 480 gallons annually, or $2,160 in gas. So, all those new costs -- just to save $1,440?

The bottom line is:

Do the math. See how much you'd really save. Drive less. You can match that 25 mpg by limiting that SUV to 7,200 miles per year, or about 100 miles per week less. People are doing it; according to recent surveys, total miles driven in 2007 actually declined for the first time since 1960. So, car pool, use public transit, use your other car more, stop taking the kids to school - you get the idea. And you may be able to lower insurance costs by driving that big rig less, too.

If you find a bargain, act. If Aunt Maude is selling her five-year old Camry with 26,000 miles on it, maybe it's time to cut your losses. Again, run the numbers. Consider a scooter.

If you need a second car, consider a scooter. They get 100 mpg vs. about 20 for a car, a savings of literally thousands in gas each year, not to mention the insurance. Just remember: They generally make sense for shorter distances, such as short drives to work, a run to the grocery store, even a ride to school, as I did in my younger days.

It's just like with taxes. Don't spend (or lose) a buck to save 35 cents.

Jennifer Openshaw is co-founder and President of WeSeed and author of "The Millionaire Zone." You can reach her at jopenshaw@themillionairezone.com.