Final Quarter 2011 US GDP Could Actually Make Q1 or Q2 Lousy
Final Quarter of 2011 US GDP Disappointing
While showing the strongest print in a year and a half, the first estimate of US Gross Domestic Product over the final three months of 2011 actually contains far more lousy details under the hood.
2.8% at an annual rate does look good at first blush, to be sure. But that beauty is only skin deep.
Basically, if it wasn't for inventory building, current available data/estimates suggest the US economy actually would have grown by only 0.85% at an annual rate in the fourth quarter, really not at all much different than other lousy quarters logged in 2011.
What is really most troubling is that the inventory build which bulked up the headline print seems to be out of whack with actual demand. This sets up a classic inventory adjustment ahead, unless, somehow, suddenly, shoppers go out on a mean buying binge over the next 3-6 months, and sop up all that excess baggage.
Unfortunately, if anything, consumers have been relatively frugal since their one and only true spending spree that occurred early on in December, but which then petered and puttered through the rest of the Christmas shopping season, and most notably, now in January.
The surprise "strength" (mild rebound) we have seen in US manufacturing over the past three months could come to a screeching halt, or even a sharp reversal, within the next 2-6 months, as a result.
Such a scenario, a rising risk given the details found in this GDP report, would increase the odds that the United States experiences renewed technical recession this year, especially if such a double punch combo of spending slowdown + inventory unwind would have the misfortune of occurring with more chaos out of Europe.
As they say, "timing is everything."
Wall Street Journal BlogEconomists React: GDP 'Less Impressive Than It Looks'
-This is less impressive than it looks; growth supported by $56 billion inventory rebound, contributing 1.9 percentage points. Final sales rose only 0.8%, the slowest since the first quarter, held down by a 12.5% plunge in defense spending. Private sector final sales rose a more respectable 2.2%. -Ian Shepherdson, High Frequency Economics
-While the consumer clearly had a more disappointing fourth quarter than economists had allowed for. A less favorable report than people will have been looking for ultimately because the inventory run off is going to hit growth going forward. -David Semmens, Standard Chartered Bank
- Services consumer spending, which is 47% of GDP, was a significant drag this quarter - rising just 0.2%. Within that, housing and utilities spending was very weak - falling 3.1%, the lowest since 1989. We suspect that the December weather - one of the warmest on record - sent utility spending down sharply that month. We won’t have the monthly details of that until next week’s spending and income report, but the data give that appearance. Where lower utility output is a charge against GDP in the current quarter, the benefits of lower heating bills will accrue over a period of months.. -Jay Feldman, Credit Suisse
While showing the strongest print in a year and a half, the first estimate of US Gross Domestic Product over the final three months of 2011 actually contains far more lousy details under the hood.
2.8% at an annual rate does look good at first blush, to be sure. But that beauty is only skin deep.
Basically, if it wasn't for inventory building, current available data/estimates suggest the US economy actually would have grown by only 0.85% at an annual rate in the fourth quarter, really not at all much different than other lousy quarters logged in 2011.
What is really most troubling is that the inventory build which bulked up the headline print seems to be out of whack with actual demand. This sets up a classic inventory adjustment ahead, unless, somehow, suddenly, shoppers go out on a mean buying binge over the next 3-6 months, and sop up all that excess baggage.
Unfortunately, if anything, consumers have been relatively frugal since their one and only true spending spree that occurred early on in December, but which then petered and puttered through the rest of the Christmas shopping season, and most notably, now in January.
The surprise "strength" (mild rebound) we have seen in US manufacturing over the past three months could come to a screeching halt, or even a sharp reversal, within the next 2-6 months, as a result.
Such a scenario, a rising risk given the details found in this GDP report, would increase the odds that the United States experiences renewed technical recession this year, especially if such a double punch combo of spending slowdown + inventory unwind would have the misfortune of occurring with more chaos out of Europe.
As they say, "timing is everything."
Wall Street Journal BlogEconomists React: GDP 'Less Impressive Than It Looks'
-This is less impressive than it looks; growth supported by $56 billion inventory rebound, contributing 1.9 percentage points. Final sales rose only 0.8%, the slowest since the first quarter, held down by a 12.5% plunge in defense spending. Private sector final sales rose a more respectable 2.2%. -Ian Shepherdson, High Frequency Economics
-While the consumer clearly had a more disappointing fourth quarter than economists had allowed for. A less favorable report than people will have been looking for ultimately because the inventory run off is going to hit growth going forward. -David Semmens, Standard Chartered Bank
- Services consumer spending, which is 47% of GDP, was a significant drag this quarter - rising just 0.2%. Within that, housing and utilities spending was very weak - falling 3.1%, the lowest since 1989. We suspect that the December weather - one of the warmest on record - sent utility spending down sharply that month. We won’t have the monthly details of that until next week’s spending and income report, but the data give that appearance. Where lower utility output is a charge against GDP in the current quarter, the benefits of lower heating bills will accrue over a period of months.. -Jay Feldman, Credit Suisse