Friday, January 30, 2009

4th Quarter GDP 3.8%...

Futures rocketed on the announcement. this is much better than the "whisper" numbers of 6% that were out there. Bloomberg picked up on the inventory build, that would be a hindrance to future growth as those inventories must be worked off. As far as the rest of it? Come on, they can fool some of the people some of the time...

It looks like they used a .6% deflator (excluding food & energy), but can almost guarantee you that REAL GDP growth was much worse than reported (I'll get the solid numbers later). Just look at transportation, the financial industry, manufacturing, the service industries... no, the fun with numbers games obviously have not ended. All the "little white lies" add up over time and are, in fact, one of the reasons we wound up in a bubble economy. Believe what you will.

U.S. Economy Shrank 3.8% in Fourth Quarter, Most Since 1982

By Timothy R. Homan

Jan. 30 (Bloomberg) -- The U.S. economy shrank less than forecast in the fourth quarter as a collapse in spending led to a buildup in inventories that will cause companies to retrench even more in the early part of this year.

Gross domestic product contracted at a 3.8 percent annual pace from October through December, the most since 1982, the Commerce Department said today in Washington. A gain in stockpiles contributed 1.3 percentage points to growth, partially compensating for a back-to-back drop in consumer spending. Prices also retreated.

The economy is likely to contract further in the first three months of this year as retailers and manufacturers, from Starbucks Corp. to Boeing Co., this week announced plans to slash payrolls and cut production to get rid of unwanted stocks. Today's report will maintain the pressure on President Barack Obama to win quick congressional approval of a fiscal stimulus package.

``We're in the middle of a sharp contraction in the economy,'' Dean Maki, co-head of economic research at Barclays Capital Inc. in New York, said before the report. ``Businesses are cutting spending in all areas, whether it's employees or investment spending.''

GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News. Projections ranged from declines of 3 percent to 7 percent.

The world's largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.

2008 Growth
For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.

Congress is considering a two-year fiscal stimulus package supported by Obama. House lawmakers this week passed the $819 billion measure.

The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Federal Reserve's preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.

Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.

``This is a severe, steep, broadly-based recession'' with ``no quick fix,'' Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland today.

Spending Slump
Consumer spending, which accounts for more than two-thirds of the U.S. economy, dropped at a 3.5 percent annual rate last quarter following a 3.8 percent drop the previous three months. It's the first time purchases declined by more than 3 percent in consecutive quarters since records began in 1947.

Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million.

`Unprecedented' Environment
``We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,'' Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.

The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.

The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.

Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. It's contribution to growth was the biggest since the fourth quarter of 2005.

The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.