The headline -3.6% was bad enough, but we already know that understaed the severity of the GDP decline significantly. The big factor: Channel stuffing. Without an inventory bloat in the quarter, the economy would’ve shrunk by over 5% in Q4.
Now here’s another factor that juiced the number positively: TARP.
Barry Ritholtz: It turns out that the TARP money given to banks as recapitalization was a major factor in the total GDP number.
How? Uncle Sam buying a financial asset does not contribute to GDP under normal circumstances. But the Treasury purchased these assets at prices discounted to market prices. (Not as cheap as Buffett’s purchases, but still at somewhat of a discount).