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David Rosenberg: 4th Quarter GDP Likely Revised to 5%

Posted by Larry Doyle on February 11, 2010 12:44 PM |

4th quarter 2009 GDP of 5.7% may have looked impressive on its face, but in peeling back the onion we learned that a large percentage of the growth was due to a slowing in inventory drawdowns rather than real growth. I highlighted as much on January 29th in writing,“Markets Fading the 4th Quarter GDP Report”:

The question for the economy, and in turn the markets, is to what degree the supposed growth embedded in the 4th quarter GDP is sustainable. To determine that, people need to appreciate the fact that this 5.7% GDP figure was driven to a large extent (60%) by a slowing in the drawdown of inventories. Are you scratching your head wondering what that means? Let’s just reduce it to the fact that drawing down inventories is not exactly a driver of growth at all.

What drives growth? Personal consumption. What drives personal consumption? Jobs.

Regrettably, we keep hearing from CFOs that they do not expect significant or meaningful job growth this year.

Over and above that, recent trade data will likely cause a revision lower in the aforementioned 4th quarter GDP. None other than our Sense on Cents Economic All-Star David Rosenberg projects that the increase in our trade deficit and overall weakness in wholesale trade will cause 4th quarter GDP to be revised to 5% from the initial 5.7% figure.


  • Aaron Kramer

    This begs the question “What will the second revision look like?” Keep up the good work LD.

  • Mike

    They’re gonna revise it down to something ridiculous like 4.5 or .6

    Isn’t it strange that massive revisions are guaranteed month after month? You’d think they’d get it right the 1st time.

    • Aaron Kramer

      I don’t normally defend the BLS but think about the amount of data they have to crunch in order to estimate the GDP. What amazes me about this process is that the economic data provided by the BLS used to processed without computers.

  • whoisjohngalt

    Something is not adding up here:

    If the 5.7% GDP is real, the how can the second largest state have a decrease in sales tax receipts?

    • LD

      Your question is a good one. I think this gets to the point of comparative analysis and the overall integrity of measuring GDP. The TX sales receipts are down 14.2% vs the same month last year.

      Your question/critique hints at the quality of GDP as a measure of true economic health. This critique is prevalent amongst followers of the Austrian School of Economics.

      I am confident you are quite familiar with this school. Your point will hopefully help others become familiar with this school as well. Thanks.

  • whoisjohngalt

    I also question the government % unemployment numbers. Last month we once again lost total jobs, but the rate went down. There was also something about 800,000 lost jobs they missed:

    So I was happy to find the Texas Sales Tax Receipts as what I think is a truthful number. This got me thinking why not look at the CA number. I got this:

    It leads off with very rosey numbers like everything is great. BUT they lead off with % above estimated revenue, not vs. last year which showed a smaller increase. Then I did some more digging & found that they had a sales tax increase on April 1, 2009–not mentioned in the Controller’s Report (there is no year ago sales tax receipts number, only a current Governor’s estimate).

    No wonder revenue increased over last year. Then I found greater witholding from paychecks:

    Since I do not live in CA, there are probably other tax tricks that I do not know about. Maybe your readers do.

    BUT NOTICE in the CA report that “personal
    income taxes came in $348 million below (-5.2%) last
    January.” That is not good. Also this, “The State ended last fiscal year with a cash deficit of $11.9 billion, so the combined current year cash deficit stands at $24.1 billion.”

    It appears that government is moving the fences in 100 feet and comparing current home run records to those of Babe Ruth, Roger Maris and Hank Aaron.

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