Lately I’ve been pointing out that the economy has been even weaker over the past six months than the weak GDP numbers suggest because of the support given the numbers by inventory accumulation. For example, the 3 percent growth in real GDP in the 4th quarter last year was almost two thirds inventory accumulation. Real final sales—GDP minus the change in inventories—grew only 1.1 percent in the 4th quarter. The first estimate of the 1st quarter real GDP growth, at 2.2 percent, appeared to be a weakening from the 4th quarter, but real final sales, at plus 1.6 percent, was stronger by half a percentage point.
This morning’s revision of the second quarter pulled the headline GDP number down to plus 1.9 percent from the earlier estimate of 2.2 percent, but real final sales were actually revised up a notch to plus 1.7 percent. So, while the headline number will get the press and will be treated as a downgrade, one could argue that it was actually a tad stronger than the earlier estimate.
Strong is a relative term. What we are talking about here are slight variations in substantial weakness. 2011 was weaker than 2010, and 2012 looks to be weaker still.