MICHELLE MEYER: GDP Was 'Grossly Distorted', And You Should Fade The Headline

michelle meyer

Photo: Bloomberg Television

Wall Street’s take on today’s GDP report is very much in line with ours: The number was good, it was the headline that was weird and misleading.BofA’s Michelle Meyer’s take? The GDP report was a “grossly distorted print.”

She recommends fading the report, meaning, bet against the prevailing take.

Fade the negative GDP headline
GDP contracted 0.1% in Q4, significantly below expectations. However, we advise fading the headline number given distortions in the data. Growth was dragged down by a sharp contraction in government defence spending and inventory accumulation, which combined subtracted 2.6pp from growth. Outside of these two very volatile components, underlying growth improved with a solid gain in business investment. We believe today’s report suggests upside risk to our forecast of 1.0% for Q1 GDP.

Cannot manage inventories
After increasing to a pace of $60.3bn in Q3, growth in inventories plunged to $20.0bn in Q4. This swing sliced 1.3pp from growth. We believe part of this decline owes to the drought which reduced farm inventories (and likely weighed on exports). Nonfarm inventories also contracted, which was likely unintentional as businesses were caught by stronger demand at year-end. As such, we expect a bounce back in inventories in Q1, adding notably to GDP growth.

She then goes on to make other points, that end consumption was up and that Q1 should bounce back.

Read more on the report here >

Watch Below: Trulia CEO Gives His Predictions About The Housing Market In 2013

Please enable Javascript to watch this video

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.

Tagged In

gdp moneygame-us