Saturday, January 29, 2011

Q4 GDP Advance

Wow, what a day yesterday.  Talk about moons aligning lately with riots in Egypt and  more social unrest unraveling faster than Bernanke can print the US peso.  Alright, maybe not that fast because after all the Fed does years of practice printing money.

Everyone was all giddy about the GDP number yesterday even though it was forecasted to be 3.5% and came in "light" at 3.2%.  It's a safe bet to assume the future revisions to Q4 GDP will be revised down considering the government is in the game right now of instilling confidence and almost all data is revised down in subsequent reports.

The big takeaways was the final demand piece of the report.  GDP can be analyzed in many ways, the 50,000 foot view is GDP = Final Demand + Change to Inventory.

Final demand came in at 7.1% which was a very strong number up from 0.9% in Q3.

Let's take a look at GDP under another definitions though.

GDP = Consumer + Investment + Government + Exports - Imports

Imports "grew" in Q4 at 2.4% thus adding to GDP versus being a drag in prior quarters (2.53, 4.58, 1.61).  So net trade imbalance was a positive 3.4% to GDP versus drags on prior GDP (1.71, 4.5, .3).  So how does our personal consumption increase while our imports decrease?

Government was a net drag of .1% versus adding to GDP of .8% in the prior two quarters.  As government "austerity" or shall we say reality of lower tax revenue and higher deficits should cause continued drag to GDP in 2011.

Consumer grew at the expense of a lower savings rate and double the growth of real disposable income.  Either the consumer is ready to spend far beyond their means again or expect this component to come down significantly in future reports.  The other component helping the consumer is the slowdown in foreclosure.  Those homeowners have not been paying mortgages for over fourteen months and as foreclosures are delayed, there is more "stimulus" to the economy.  At some point though, foreclosures will start back up again and that stimulus will stop.

The economy still remains very fragile.  Expect this report to be revised down in future revisions.  With the government limited in their ability to stimulate the economy and in reality becoming more of a drag, any future shocks will have a far more significant impact on growth and this fragile economy's ability to absorb such shocks.


No comments:

Post a Comment