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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.


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