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Will the iPhone Really Boost GDP?

Will the iPhone Really Boost GDP?

If what people are calling the “fiscal cliff” does happen at the end of this year, we could be looking at a 3.5 percentage point slowdown in GDP, economists say, a situation that could throw us back into recession. That said, our economy could certainly use a boost, and we’ll take it anywhere we can get it. A recent client note from J.P. Morgan says the new iPhone 5 of all things, to be unveiled today, could actually boost GDP by 0.33 percent, adding $12.8 billion to the U.S. economy in the fourth quarter.

Sounds like a bit of a stretch to me—that one product could do that much for our economy.

From the National Business Review:

To put that in context, economists have been picking a 2% GDP increase for the quarter. 

If the iPhone 5 boost eventuates, it could be the difference between economic forecasts meeting target, or not – and all the market-moving buzz that attends a hit or miss.

Then again, Apple (ticker: AAPL) has shocked and surprised us many times over with its successes.

Michael Feroli, the JPM analyst who wrote the note, says to treat the estimate with skepticism:

This estimate seems fairly large, and for that reason should be treated skeptically. However, we think the recent evidence is consistent with this projection. The last iPhone launch was at a similar time last year. In October of last year, when the iPhone 4s first became widely available, overall retail sales that month significantly outperformed expectations. Essentially all iPhone sales occur either on-line or in retail stores. Over half of the 0.8% increase in core retail sales last October occurred in two categories: on-line sales and computer and software sales, which combined had their largest monthly increase on record. The incremental growth of Q4 sales at those stores over Q3, if due to the iPhone, would have added between 0.1% to 0.2%-point to Q4 growth, after subtracting the import drag. Given the iPhone 5 launch is expected to be much larger, we think the estimate mentioned in the first paragraph is reasonable.

In a blog post, economist Paul Krugman argues that if you believe the new phone will boost the economy, then you have bought into the “broken windows” theory, as he calls it: “in which destroying some capital can actually be a good thing under depression conditions.

“Of course, it’s nice that the reason we’re junking old capital is to make room for something better, not just for the hell of it. But you know what would also be nice? Building useful stuff like infrastructure employing labor and cash that would otherwise sit idle.”

As of this writing, AAPL was up 0.28 percent.

What do you think?

TAGS: Equities
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