$6 billion pile-up

Real GDP kind of did fall 5% last quarter, just as consensus forecasts had it and worse than the official drop of 3.8%.  This story’s a couple weeks old (been busy), but just as the latest unemployment numbers are much worse than they look, the fact that the actual (annualized) drop was “only” 3.8% is actually a sign of weakness, not strength. The NYT and other sources noted that a big reason for the discrepancy was a surprise increase in unsold inventories.

What struck me was the item in the Commerce Department news release that showed that the inventory pile-up actually accounted for all of the discrepancy.  It was 1.3% percent of GDP, i.e., the entire difference between the 3.8% drop in GDP, and the 5.1% drop in “real final sales of domestic product.”

The dollar value of the pile-up was $6.2 billion.  Oddly (to me, anyway), inventories had been moving in the opposite direction in the previous two quarters, falling $51 billion in the second and $30 billion in the third, even though the economy was in recession then, too.  Production was falling faster than sales, as if producers knew demand was about to fall off the table.

But the fourth-quarter drop in demand was a bit more than they expected.  An economist quoted in the Times article said he expected real GDP (not just sales) to fall 5% in the current quarter, now that production has had time to react.

Finally, for what little it’s worth, the Commerce Department release noted that for the whole year of 2008, real GDP actually rose a bit (1.3%).  This despite the economy officially being in recession for the entire 12 months.  Can a statistic be ironic?

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