Friday, January 28, 2011

First Pass Q4 GDP Comes in a Bit Light Versus Expectations at 3.2% and vs 2.6% in Q3

The GDP figures are backwards looking and revised to the moon so generally not something that important other than for economists - and in this market where none of the data matter (i.e. yesterday's heightened weekly unemployment claims were forgotten within 3 minutes), the data is especially irrelevant. But for the sake of commenting, the first pass at Q4 2010 came in this morning at 3.2% versus expectation of 3.5%.   There will be 2 more revisions to this figure and for all we know it could end up being 2.1% or 4.3% by the time they are finished.

Real final sales at 7.1% will be the eye catcher in this report.  Household purchases rose 4.4% - important in an economy that is 70% dependent on consumption.  Lots of government assistance in this figure as 1 in 5.5 dollars of income for the average American is now coming from the government... and 7M households don't pay their mortgage but live in the home 'rent free'.  In 2011 the payroll tax holiday of 2% is going to juice this figure even further over the natural organic rate.

The price deflator was only 0.3% versus expected 1.6%. - effectively this is 'inflation' as measured in the GDP.  If you believe you faced 0.3% inflation in 2010 feel free to raise your hand.

If this GDP figure for Q4 holds, the finally tally for the year 2010 will be a gain of 2.9%, versus the drop of 2.6% of 2009.  Again the "costs" (federal spending, Federal Reserve actions) involved in getting GDP even to this 'trend' level of 3%ish were immense - it is a very inorganic figure.

Report here.


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