January 29, 2016

4Q15 Gross Domestic Product, 1st (Advance) Reading (012916): An Annualized 0.7 Percent; Negative Inventory Effect Far Lower Than Predicted; Feb. and March Revisions Going Into Contraction Is a Distinct Possibility

Filed under: Economy,Taxes & Government — Tom @ 7:15 am


There are so many reasons in the hard data coming from Uncle Sam and others during the past several months why today’s report should be worse than the consensus predictions. But it has all seemed to come down to consumption and inventory changes with GDP in recent quarters, so it’s hard to bet against the consensus predictions. One would think that if there’s a surprise, it would almost have to be to the downside. But again, consumption uber alles.

The report will be here at 8:30 a.m.

HERE IT IS (full text version):

Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 0.7 percent in the fourth quarter of 2015, according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 4 and “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the fourth quarter, based on more complete data, will be released on February 26, 2016.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from private inventory investment, exports, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in exports, and in state and local government spending that were partly offset by a smaller decrease in private inventory investment, a deceleration in imports, and an acceleration in federal government spending.

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — increased 1.1 percent in the fourth quarter, compared with an increase of 2.2 percent in the third.

The final paragraph confirms the domestic slowdown the press, which has insisted on telling us that it’s all about what’s going on the in the rest of the world, has avoided reporting.

I’ll have the breakdown and comparisons to previous quarters shortly.

UPDATE: Here’s the breakdown:


Here’s the problem, identified in the following paragraph in Moody’s pre-release prediction yesterday, captured here, because it won’t remain for long:


As seen in the table above, inventories substracted only 0.45 points from GDP. As seen in the announcement, real final sales only rose 1.1 percent instead of 2.1 percent

If Moody’s is ultimately right about inventories — and there are others who have expected an inventory effect roughly as large or larger — then future revisions have a very high chance of pulling fourth-quarter GDP into negative territory.

(Specifically, if you take another 0.85 points away from today’s 0.7, based on a projected 1.3-point inventory hit instead of the currently reported -0.45, you get a negative 0.15 percent reading.)

Another factor which may pull revised GDP down is consumption, if retail sales, durable goods shipments, or wholesale sales in December get revised downward. Previous months’ originally reported retail sales have been revised downward in the following report on an almost regular basis.

But, as noted an inventory-related writedown of GDP seems very likely February or March. Today’s change is so small compared to expectations that one has to wonder if the government is delaying the bad news as long as it can.


1 Comment

  1. [...] the idea that the economy is going to genuinely improve during the first quarter of this year after a dismal 0.7 percent fourth quarter of 2015 — which, using a predictor’s own words before Friday’s [...]

    Pingback by BizzyBlog — February 1, 2016 @ 8:17 pm

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