GDP: Told ‘Ya So

GDP Down

Told ‘ya so, given the leading indicators in the Fed indices

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.


That will be the end of that.

CNBC is spinning like crazy, but it’s hard to spin this number.  It sucks.

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, decreased.

The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending that were partly offset by an upturn in nonresidential fixed investment, a larger decrease in imports, and an acceleration in PCE.

Yes, the government was real.  But the real inventory numbers are more meaningful.

“Buying” growth with federal spending doesn’t work.  Rick Santelli is hammering on this and he’s right — this is a crap report and is underlining exactly what has been going on for the last several years.

There were other big distortions in the data that were helpful to the number — for example, “equipment and software” which was up big, but almost all of that is likely attributable to the fear of expiring tax credits for accelerated depreciation (which means “look out below!” for first quarter’s report in another three months!

Exports are down big (5.7%) and that is likely not related to tax policy.

Government spending’s decrease was all defense; ex-defense it was up 1.4%.

Finally, real gross domestic purchases were only up 0.1% .vs. 2.6% in the third quarter.  That’s real final demand — and it collapsed.  Note that this was into the holiday season and thus would be expected to be seasonally strong.

Disposable personal income was up big — and that will require some investigation.  A large part of this may be pulled-forward asset sales to get under the tax increase window.  The “savings rate” increase implies this was at least partly the case, and may be entirely the case.

Current-dollar GDP (adjusted for inflation) was up only 0.5%, which sucks.

This is a crap report but has hair all over it.  While there will undoubtedly be plenty of people pointing fingers when you get the one-time distortions from the fiscal cliff fears out of the report the real issue is found in inventory and domestic purchases — and both of those suck.

Update: As expected, the detail tables tell the tale — the personal income addition was from asset sales and special dividends, presumably to get in front of tax rate changes.  Specifically, wage income increased by $62 billion, but income receipt on assets was up $141.6 billion on the quarter, a monstrous change.  Last quarter this figure was slightly negative and historically it tends to be reasonably stable.

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