Unlike Wagner’s music, the fourth quarter GDP numbers are not better than they sound. They are worse, in fact, and the third and final estimate, out last week, didn’t improve them any.
The second and third estimates both had real GDP growing at an annual rate of 3 percent in the fourth quarter, the largest growth rate of last year. Unfortunately, they also both showed that inventory accumulation, a.k.a “inventory investment” accounted for almost two-thirds of the growth. Removing the inventory buildup left real final sales up at only a 1.1 percent annual rate, well below the satisfyingly round headline number of three percent.
By contrast, inventory liquidation actually pulled down the headline estimate in the third quarter, making it a stronger quarter in terms of real final sales than the fourth. Real final sales in the third quarter were up 3.2 percent, above the headline real GDP number of 1.8 percent. While acknowledging that the reasons for inventory accumulation make them tricky to interpret, I would nevertheless argue that the economy weakened considerably in the 4th quarter of 2011. We’ve all been so hungry for good news that most have chosen not to notice the setback