I Have to Post Something About GDP

From the BEA:

"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.7 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis."

I'm excited about that 5.7%, I really am, but knowing that GDP growth due to real final demand was only 2.2% still has me a bit bearish on the market. Later in the BEA report you find:

"Real final sales of domestic product -- GDP less change in private inventories -- increased 2.2 percent in the fourth quarter, compared with an increase of 1.5 percent in the third."

So more than half of the 5.7% Q4 GDP growth is due to "change in private inventories." It's what economists have been talking about for quite some time. The increases in ISM PMI, capacity utilization, industrial production, etc. . . for the moment anyway, are mainly the result of an inventory bounce. That's why you've seen increases in these broad indexes without seeing any job creation, (and without the expectation of any job creation.) Firms clearly don't expect growth this high going forward, else they'd be hiring, but they're not. Last month the manufacturing sector lost 27,000 more jobs.

I'll highlight a couple of other things I found relatively interesting. Personal Consumption Expenditures (PCE) and Residential Investment (RI) are both growing, but at a slower pace than they were in Q3. This doesn't bode well for a quick recovery, which shouldn't be a surprise at this point. Calculated Risk has more:

"It is not a surprise that both key leading sectors are struggling. The personal saving rate increased slightly to 4.6% in Q4, and I expect the saving rate to increase over the next year or two to around 8% - as households repair their balance sheets - and that will be a constant drag on PCE.

And there is no reason to expect a sustained increase in RI until the excess housing inventory is absorbed. In fact, based on recent reports of housing starts and new home sales, there is a good chance that residential investment will be a slight drag on GDP in Q1 2010."

Can't help but agree with the analysis in housing. There has been literally NO good news coming out of that sector in recent weeks. Home starts are down, months of supply is up, new home sales are down, existing home sales are down. Nothing looks particularly good here.

Check out this post on Calculated Risk for a more detailed overview of the Q4 GDP report.