Fourth Quarter Real GDP: Better than the Number
As I have noted previously, recent quarterly real GDP growth has arguably been weaker than the headline number because inventory “investment,” which is tricky to interpret, contributed substantially to the growth. That was the case for the five quarters prior to the fourth quarter. Another way of saying it is that real final sales have been substantially below the real GDP numbers.
That reversed big time in the fourth quarter. A decline in inventories trimmed a whopping 3.9 percentage points from the headline Real GDP increase of 3.2 percent. Real financial sales were up 7.1 percent. Maybe this is the beginning of something good.
In treating the decline in inventories as good news, I acknowledge that I’m assuming the decline was not planned but was the result of sales exceeding expectations. I think anecdotal evidence supports that more than previous anecdotal evidence supported that the increases were planned.
