According to preliminary numbers (these numbers frequently are adjusted months after the fact), the government reported fourth quarter gross domestic product (GDP) jumped 5.7%. Since real GDP increased 2.2% in the third quarter, I suppose that means with two quarters of growth we are considered to be officially out of the recession – time to celebrate?
You may recall a prior blog stating, “If data ends up showing we are out of this recession, then we believe eventually we will be right back in. This is commonly referred to as a double-dip recession – we instead call it the same recession we began with, masked by a temporary drug-induced high.” Our opinion remains unchanged.
Remember, during the third quarter, we mentioned, “…retail sales appear to be up, but when you strip out the boost of auto sales from the cash for clunkers program, spending is actually weaker. The more frugal consumer as of recent hasn’t disappeared after all.”
During the fourth quarter, I’m sure the federal stimulus contributed heavily to that growth as well, although there are no statistics about that yet. What is worthy of mention is that this was inventory led GDP growth – slower liquidation of inventories held in warehouses contributed 3.4% of that growth. We’re not saying inventory led GDP growth is to be completely ignored, but right now businesses are just adjusting to a new level of inventories. What really matters is will sales to consumers at the end point rise? Consumer spending has still declined year over year.
Another interesting thing to point out is that normally, during a recovery, if inventories are truly rebuilding to now support growth, you would expect to see imports rise from materials being purchased overseas . The government report indicates imports actually declined, which counterintuitively, also added to GDP growth (because there is less to counter exports, giving the appearance of export growth).
My wife and I were recently considering installing artificial turf in our backyard around our children’s play set. As we viewed the samples, I couldn’t help but liken the economy to artificial turf. Perhaps this growth may not be plastic, artificial turf, but we’re certainly dealing with green shoots that have real weak roots.
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