Sunday, January 31, 2010

Breaking Down the GDP Number

Stefan Karlsson has a solid break down of my least favorite aggregate piece of data, the GDP number:
-More than a quarter of that growth was illusory, as the domestic purchases deflator rose 2.1% while the GDP deflator rose 0.6%, meaning that terms of trade adjusted GDP rose 4.2%, not 5.7%.

-Many of the assumptions of this preliminary numbers seem over-optimistic (for example on structures and the trade deficit), meaning that the number will probably be revised down, just like the third quarter number was revised down from 3.5% to 2.2% (and could be downwardly revised further in the annual reviews).

-Of the now reported 4.2%, no less than 3.4% depended on reduced inventory reductions. That doesn't make that growth less real, but it does suggest that growth will likely slow down.

-The one really bullish aspect, apart from the overall number, was that government purchases fell back as a share of GDP for the first time since the fourth quarter of 2005. It remains to be seen however, just how sustainable this will be (the Q4 2005 drop was a temporary blip in the upward trend from 2000 to 2009).
I would also add that motor vehicle output, though down from Q3, added 0.61 percentage to the fourth-quarter change in real GDP. This is, of course, all part of Obama's manipulated economy.

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