Fourth Quarter GDP: It’s Just a Number

 

Okay, so the negative 0.1 percent real GDP number surprised me, even though I was expecting weakness. After arguing that recent GDP numbers were worse than the headline, primarily because of inventory accumulation, I’m happy to report the opposite this time around. Without inventory runoff, the number would have been up 1.1 percent, still not good, but not negative.

The decline in exports, partially offset by a smaller decline in imports was not good, both in terms of our own trade balance, but also for what it implies about softening world trade. The contribution of a significant decline in federal government spending might be welcome were it not so concentrated in military spending, which may only be a timing issue.

The really good news was a sharp increase in investment spending, both fixed and residential. That’s what we’ve been missing lately. The increase in consumption was also welcome.

For the past three years, nominal GDP growth has been 3.8 percent, 4.0 percent, and 4.0 percent, divided roughly in half between real growth and inflation. I expect the slightly negative number for the fourth quarter not to change that. Neither do I expect it to affect the FOMC’s path to be announced today.

 

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  1. Gabriel Odom says:

    I concur that the decrease in military spending is probably just timing. Without some significant adjustments to how Washington spends money, I doubt that dG/dt will stay negative for long.