Friday, January 29, 2010

5.7% GDP!!!

Well, as expected the GDP number for the fourth quarter was strong - up 5.7%, but unfortunately that's in our rearview mirror now and there are reasons to not be excited by that headline number.



1) Inventory build represented 3.4% of the gain in the quarter. This fits with what I've been hearing from other sources that much of Q4 was inventory build and that cycle is slowing now.

2) There are a couple of math issues with this data. The printed number of 5.7% has a +/- 37% confidence interval. Revisions have tended to be negative lately so there is a possibility that final GDP may come in much lower than the reported number (remember when they revised Q3 GDP data?). There was also a big boost to GDP by a lower than expected inflation rate. The smaller GDP deflator boosted GDP for the quarter by at least 1%.

As someone else said "5.7% GDP growth is better than a sharp stick in the eye, but it's not as good as the headline indicates".

Cheers!

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