Diary

Raining on the GDP Parade

The Bureau of Economic Analysis released the “advanced” estimate for the 4th quarter GDP. Strike up the band and put the kiddies on your shoulders so they can see the parade of media and politicians marching and singing “the recession is over, the recession is over” as planes dragging banners pronounce the 4th quarter GDP was 5.7%!

Thanks for the pomp, but the 3rd quarter parade came up a little short once the band had silenced and after two months of litter clean-up to get to the real numbers. The “advanced” numbers for the 3rd quarter GDP started at 3.5% – YEAH! But wait… the next revision was down to 2.8% – Yeah! Wait again… the final revision was at 2.2% – Uh… ok, yeah!. Except 66% of the growth was the one-off cash for clunkers program funded by taxpayer debt which left only 0.75% – uh, yawn!?!

The progression of 3rd Quarter numbers reminded of the parade in Animal House which started out well, but the band ended up stuck in an alley and main street was left with alot of litter and a Delta Tau Chi (???) hangover.

Now the shouts of triumph can be heard “the GDP grew at 5.7%”! Looking closer at the “advanced” numbers show that about 60% is related to a lessening in the contraction of business inventories. In the 4th Quarter, business inventories ONLY declined by $ 33 billion which when compared to the 3rd Quarter decline of 139 billion is much better but still a decline yet it contributes a positive 60% to growth comparing quarter to quarter figures. Personal consumption was actually down compared to the previous quarter. The biggest other gain in the index besides the decreasing rate of inventory contraction was the purchase of equipment and software as businesses look to boost productivity and lock in deductible expenses rather than
hire labor.

I think I’ll wait for the taped replay of this parade a couple of months from now before I decide to sing-a-long.