Yesterday, I was busy dealing with two big projects: John Mauldin’s newsletter, and interviewing new publishers for the next book (no, it ain’t gonna be McGraw Hill again).
This kept me away from my favorite wonk activity, dissecting the latest government data dump. Or as it is known on college campuses across the land, Intro to Creative Writing & Poetry.
Barron’s Randall Forsyth takes a swipe at the numbers:
“The litany of woes was capped by the government’s first stab at estimating the fourth quarter’s gross domestic product, which was shown to have contracted at a 3.8% annual rate, after the usual adjustment for inflation and seasonal factors. Though much worse than the 0.5% decline in the third quarter, it was less severe than the 5%-6% drop forecast by economists, if that offers any solace.
The skid was tempered by an unexpected rise in inventories, which added some 1.3 percentage points to the headline GDP number, according to Steven Wieting, economist at Citigroup. Excluding inventories, real final sales shrank at a sharp 5.1% annual pace, about as expected and much more severe than the 1.3% contraction in the preceding quarter. That points to destocking in this quarter and the quarters ahead as production is cut to bring it in line with demand.
But falling prices also made the real decline appear less severe than it was. Nominal GDP collapsed at a 4.1% annual rate in the latest quarter, the sharpest drop in a half a century. And it would have been worse were it not for Uncle Sam’s spending; private final sales plunged by 6.5% while government spending expanded at a 1.9% pace despite contracting state and local expenditures.
“Once again, real GDP growth appears to be a poor metric of the recession,” write John Ryding and Conrad DeQuadros, economists at RDQ Economics. Consumer spending plunged at a 3.5% annual rate in the current quarter, residential investment collapsed at a 23.6% rate and real business spending plummeted 19.1%. “There was no demand from the private sector in the fourth quarter,” they conclude. And the same was true globally. Exports fell at a 20% annual rate as the recession spread abroad.
While real GDP was the weakest since 1982, nominal GDP was the worst since 1958. The difference is falling prices, which makes the real measure seem less dire. But Ryding and De Quadros contend that the unemployment rate is a better indicator of the economy than GDP. As the tally of the layoffs rises, that paints a still-drearier picture. (emphasis added)
I’ve had a pretty reliable gut on the real economy versus official economic data — its not fat, its actually filled with proprietary economic sensors — and this is only part of the story. My Spidey-sense tells me there is much more to this number than the usual soon-to-be-revised downwards preliminary data.
I’ll hunt about to see if there is anything beyond the usual funny stuff going on . . .
What’s So Super?
RANDALL W. FORSYTH
Barron’s JANUARY 31, 2009
Gross Domestic Product (GDP)
8:30 A.M. EST, FRIDAY, JANUARY 30, 2009