THE gross national product. Released every quarter, it is widely considered the broadest gauge of economic activity, measuring the nation's output of goods and services. It is quoted on the nightly newscast and followed closely by Wall Street. However, it is also used widely by business, labor, and government.
This is how a businessman, union official, government official, investor, and Wall Street economist use the GNP numbers. The businessman
When Stanley Gault, chairman of Rubbermaid Inc., plans his budget every September, he uses GNP growth estimates as the primary input.
``We follow the GNP trend very closely,'' Mr. Gault says, ``because we have such an extensive product line.'' Rubbermaid, based in Wooster, Ohio, produces consumer products, and sells to business and farmers.
Thus, the general health of the economy does effect Rubbermaid's operational and short-term planning. Last year as Gault watched the GNP decline each quarter, he became more pessimistic for 1989 and projected an annual GNP growth of no more than 2 to 2 percent. By the fourth quarter of 1989, he expects there will be no economic growth. As a result of this projection, the company's capital expenditures were held at $85 million, down slightly from the year before.
Gault keeps his eye on Rubbermaid's incoming order rate. ``It's a pretty good indicator of the pulse of the economy at the moment,'' he says. Currently, he finds retail sales sporadic with lackluster growth in many product lines. He believes the late spring has kept consumers from spending.
Thus, he was not surprised on Wednesday when the US Commerce Department in its first estimate said the GNP grew 5.5 percent. Subtracting the farm sector, which rebounded from the impact of the drought, the GNP grew by 3 percent. This is slightly below Gault's forecast from last September, but fits right into what the company is currently experiencing. The union official
Twice a year, research director Tom Balanoff writes an economic summary that goes to the local leaders of the 850,000-member Services Employees International Union, part of the AFL-CIO.
The GNP numbers help Mr. Balanoff with the report, as well as various verbal assessments he makes to the union's board. On the basis of those reports, the union's board has to make decisions on what types of items it wants to negotiate for in new contracts. ``If it looks like we are going into a recession or slowing down, we might be more concerned with job security,'' explains Balanoff. If the economy is bubbling right along, higher wages or longer vacations might be the chief topic.
Because services make up such a large part of the economy, Balanoff figures his union experiences the same growth as the GNP. His gut feeling is that the economy is heading for a recession. What does that mean for negotiations? ``We would stress job security and health care costs,'' he says.
As far as the latest numbers are concerned, he fears the 3 percent growth rate might be too high for the Federal Reserve Board. ``The key question is how will it be interpreted by the Fed,'' he says. The government official
As the general economy goes, so goes New York City.
At least that is the view of Paul Dickstein, the city's budget director. Unlike many cities that get their revenues from taxes on property values, New York counts on scores of taxes, ranging from sales tax to income tax. ``Our prospects are tied to the economic cycle,'' says Mr. Dickstein.
Dickstein watches the GNP numbers carefully to see how it fits in with the city's own projections which are made in December and updated in March. Dickstein starts with a forecast from the Wharton Economic Forecasting Associates. The city then plugs the WEFA forecast into its own computer forecast for the local or regional economy. Yet another computer program projects tax revenues.
In March, the city's own economic projections showed the local economy slowing down. Job growth in the city came to a standstill. Tax receipts stopped growing. For the city, says Dickstein, it means it is time to ``tighten your belt.''
Looking at the latest GNP numbers, Dickstein is not any more optimistic. ``We are still assuming the GNP will grow at under 3 percent for the whole year,'' he says. The investor
Roberta Olson, a portfolio manager for Banc One Asset Management Corporation, looks at the quarterly GNP figures as a way to confirm the bank's own economic outlook is on target.
If there are any surprises in the GNP numbers, it can result in nearly instant action on Ms. Olson's part. From her Columbus, Ohio, office, she will buy or sell bonds from her $700 million portfolio.
If the economy in too strong, Olson most likely will sell off part of her portfolio, expecting that yields will rise later as the Federal Reserve Board reacts to the economic numbers by raising interest rates. If the economy is weaker, Olson buys bonds in the expectation the Fed will ease its grip on interest rates.
How did she react to the current numbers? ``There was no reaction whatsoever. There was nothing to justify changing opinions,'' she says. In her opinion, it is a good time to buy bonds since she thinks interest rates are headed lower. The economist
From the perspective of Dick Hoey, chief economist at Drexel Burnham Lambert Inc., the GNP numbers are limited in their usefulness since they reflect past information. ``We already know the economic data for two of the three months,'' he says.
Nevertheless, Mr. Hoey and his associates will analyze the data when it comes out and quickly give their assessments to the firm's brokers. Sometimes they use a nationwide intercom system, and sometimes a newswire type of approach. ``There are a lot of futures speculators who will trade on any piece of news,'' he explains, ``so we have to analyze any change in the total picture.''
For Hoey this means looking carefully at the components of GNP, including such factors as inventory growth and consumer spending. ``In general the data confirm the monthly indicators,'' he says.
Over the last three months it has been clear inflation is picking up. The latest numbers now show Drexel's economists that it is picking up at a 5.5 percent annual rate - more than expected.