Last week, we looked askance at the GDP release, noting that it did not comport with what we were seeing elsewhere. (Taking Apart Robust GDP Data). In January, we approvingly referenced Caroline Baum’s analysis (Q4 Data Doesn’t Add Up).
Those criticisms turned out to be dead on:
"U.S. wholesalers’ inventories took the biggest tumble in more than
three years during December as overall demand for their goods raced
forward.Wholesale inventories decreased by 0.5% to a
seasonally adjusted $393.76 billion, the Commerce Department said
Thursday. November inventories rose by 1.1%, adjusted from a previously
reported 1.3% climb.
The 0.5% decrease in December wholesale inventories surprised Wall
Street, which expected a 0.5% gain. It was the sharpest drop since 0.6%
in May 2003."
Most recent data makes it apparent that Commerce data overstated Q4 GDP by as much as 100 basis points.
Here’s the math: the BEA assumed a 1% gain in inventory; Wall Street were looking for a smaller inventory build of 0.5 %. But Inventory was drawn down by 0.5%. Thats a full 150 basis point swing in the BEA data.
This presents a mixed economic picture. On the one hand (Damned two handed economists!), this means GDP in Q4 was nowhere near 3.5% — I suspect this will put us in the 2.5 – 2.75% range.
There is a silver lining however:
"The report showed wholesale sales surged by 1.8% in December to $337.11
billion. That followed a 0.9% climb in November, revised from the 1.0%
increase previously reported for that month.
Year over year, wholesale inventories grew at the same pace as sales,
8.6%. Wholesalers in December had enough goods on hand to last 1.17
months, down from 1.19 in November and matching December 2005’s 1.17."
Increased demand for goods at wholesale suggests that ongoing economic activity is not faltering. And, the decreased inventories won’t be a drag on GDP in forward quarters . . .
XXXX
Sources:
MONTHLY WHOLESALE TRADE: SALES AND INVENTORIES
U.S. Census Bureau News, DECEMBER 2006
http://www.census.gov/mwts/www/currentwhl.html
US Wholesale Inventories Below Expectations
Jeff Bater
Dow Jones, Thu, Feb 8 2007, 15:15 GMT
http://tinyurl.com/3c98og
To the extent that the inventory liquidation showed up as weaker imports rather than orders to domestic producers is will not have a negative impact on gdp. One of the reasons 4th Q real gdp was so strong is that the inventory correction was already working through weak imports.
When housing(residential investment 4% or less of GDP) and manufacturing(ISM below 45) fall into solid recessions, we won’t need inventories to worry about a “drag” on GDP growth.
That time has about cometh IMO.
Barry, for another perspective if you look at the trendlines of YOY% change in GDP, PCE, et.al. there’s been a gradual slowing since ’04. The last quarter’s numbers are somewhat anomalous in that they jump up above the trend yet are still within a reasonable range. That is previous quarters have shown similar jumps while the overall trend continues down.
HOWEVER….if 4th quarter GDP/PCE are revised downward, let alone at the levels you’re implying, then the converse isn’t true. That is the gradual slowing won’t have continued but rather it will be acclerating.
An interesting dilemma. Indeed.