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. In the third quarter, real GDP increased 2.2 percent
Here’s the line on inventories:
The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change.
As I have been saying for 9 months, it is INVENTORIES here. Is this a fake recovery? Underlying growth was only 2.3% ex inventories and that’s using massaged inflation metrics. Even so, this is a big number and it means a technical recovery IS indeed at hand. You don’t get 5.7% in a recession. Also notice what the BEA says about disposable personal income.
Disposable personal income increased $130.8 billion (4.8 percent) in the fourth quarter, compared with an increase of $31.6 billion (1.2 percent) in the third. Real disposable personal income increased 2.1 percent, in contrast to a decrease of 1.4 percent.
When I wrote about double dips, I said this is one important metric to look for.
First and foremost, we should be looking to disposable personal income i.e after tax money consumers have to spend. Given the high debt levels in America and the need to re-build savings in a non asset-based economy, people aren’t going to spend unless they make more. Right now Personal income is pretty much flat-lining. This is a weak link for sure.
The next link to watch is retail sales. I said that the negative number for spending on basic non-durable goods in the second quarter was a bad sign. This can be overcome by inventory adjustments and government stimulus for 6 months, maybe a year. But, eventually, demand must turn up or recovery will fade.
So DPI is no longer flatlining; it surged in Q4 2009. That tells you this is a technical recovery as well. But, this number and retail sales are the first things to look for regarding sustainability. There will be a lot said about this number. But, your takeaways should be: cyclical agents like inventory changes will drive the uptick near-term. This is being bolstered by stimulus. And the end result is higher disposable personal income. We should still look at DPI and retail sales for signs of sustainability.
Originally published at Credit Writedowns and reproduced here with the author’s permission.
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