New iPhones will have limited effect on US economy

A US Capital Economics update has reported that the recent iPhone 6 and iPhone 6 plus releases may have some, albeit minor, effects on forthcoming US consumption and import data.

However, the authors of the update, Paul Dales and Andrew Hunter, revealed that the new releases are unlikely to have any notable effect on US gross domestic product (GDP). Despite this, the analysts’ outlook for US consumption still remains positive.

Both of the new iPhone models were released on 19 September, constituting a record breaking 10m sales in the first week. The new release’s one-week-since-launch sales were one million units higher than the last iPhone model.

Historically, previous iPhone releases have shown a positive effect on consumption of telephone and fax equipment. As the current release represents Apple’s biggest release so far, it is likely the US economy will feel a similar effect.

According to the report by Capital Economics, an increase in telephone and fax equipment spending of around 4% month-on-month would boost overall US consumption by $1bn. The new release may also encourage consumers to spend more on mobile phone tariffs in the US. In the wider economy, this increase would account for no less than an underwhelming 0.01% increase in overall GDP.

The historical data (source: Thomson Datastream) shows that although the release of a new iPhone model generally stimulates an increase in consumption, these boosts are generally short lived, and accompanied by slumps either shortly before or after release. This implies that those who purchase new iPhones either post-phone spending in advance, or, in the run up to, buying the new model.

Therefore, the release of a new iPhone does not necessarily affect the overall level of consumption in the US, but rather the timing of consumption.

In recent years, the assembly of iPhone products had been moved from California to Taiwan. Therefore, iPhone products no longer count as domestic output, but as imports.

Any increase in GDP following an increase in consumption is likely to be offset by any corresponding drag caused by an increase in imports.

According to figures received from Thomas Datastream, US mobile phone imports have historically tended to increase either just before a new iPhone release, or just after. This corresponds with an overall increase of $1bn worth of imports, a comparatively tiny portion of GDP, standing at less than 0.01%.

The conclusion drawn from these figures may indicate a small net boost in GDP, as the retail value of the new iPhone is greater than the net import value. Despite this, the boost procured from this month’s new model is likely to be negligible.

Regardless of the new iPhone’s success, the US economic outlook remains bright, as US household wealth is continuing to grow and US income growth is reportedly set to accelerate.

Analysts at Capital Economics have reported that they expect consumption growth to show a 3% increase towards next year, pointing towards a positive economic outlook for early 2015.