A Phony Economy

A Phony Economy – Will the iPhone help the economy?

I’m not talking about the improved speed and screen size. That’s part of a general trend in cell phones that has been going on for years. Mobile computing is part of a technological cycle that allows us to work—and consume—more efficiently.

No, I’m talking about the boost to GDP that will come from iPhone sales. Based on past iPhone introductions, Apple should sell about 8 million or so in the fourth quarter. With a $600 price and a $200 cost, that implies $3.2 billion in gross margin—or $13 billion at an annual rate. This would boost the economy in the fourth quarter by 0.33%. If you add a certain amount of accessories (due to the new shape and different power cord), that could lift GDP by up to 0.5%.

We saw this last year. When the iPhone 4s came out, there was a big bump in retail sales—more than expected. And Apple’s earnings, which lagged in the third quarter (as people anticipated the upgrade), charged forward in the fourth. So is our economy becoming dependent on the Cupertino colossus?

Not really, economies adapt to the environment around them. This used to happen in the ‘60s and ‘70s when hot new car models came out. More recently there was a bump in GDP when Microsoft introduced Windows 95. People anticipate these updated products and formulate spending plans around them.

That’s another reason I don’t think a recession is likely. Half a percent may not seem like much, but every little bit helps. With job growth tepid and gas prices rising, the economy can use all the help it can get. Increased sales from the new iPhone may be just the ticket.

Douglas R. Tengdin, CFA
Chief Investment Officer

Follow me on Twitter @tengdin

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