Photo: White House via Flickr
People will be stunned to see that today’s GDP report went negative for Q4… the first negative print since The Great Recession.But the report isn’t that bad. In fact it was arguably good.
For one thing, most of the collapse was due to a stunning fall in military spending. That’s not good for GDP, but it doesn’t reflect the real underlying strength of the economy.
And it’s mostly due to war drawdown. That’s a good thing for everyone!
There was also a big decline due to a reversal of big inventory buildups.
The change in real private inventories subtracted 1.27 percentage points from the fourth-quarter change in real GDP after adding 0.73 percentage point to the third-quarter change. Private businesses increased inventories $20.0 billion in the fourth quarter, following increases of $60.3 billion in the third and $41.4 billion in the second.
Seeing a decline in inventory buildups isn’t that big of a deal really. This number always goes back and forth.
What’s key is that the numbers that really reflect the strength of the economy were much better.
Personal consumption, fixed investment, and equipment/software all grew nicely. This is the real economy humming along.
Real personal consumption expenditures increased 2.2 per cent in the fourth quarter, compared with an increase of 1.6 per cent in the third. Durable goods increased 13.9 per cent, compared with an increase of 8.9 per cent. Nondurable goods increased 0.4 per cent, compared with an increase of 1.2 per cent. Services increased 0.9 per cent, compared with an increase of 0.6 per cent.
Real nonresidential fixed investment increased 8.4 per cent in the fourth quarter, in contrast to a decrease of 1.8 per cent in the third. Nonresidential structures decreased 1.1 per cent; it was unchanged in the third quarter. Equipment and software increased 12.4 per cent in the fourth quarter, in contrast to a decrease of 2.6 per cent in the third. Real residential fixed investment increased 15.3 per cent, compared with an increase of 13.5 per cent
So, less war, more business investment. This was a good report.
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