Fake Growth? Exploring The Big Mystery In Friday’s GDP Report
We have become accustomed to the miraculous economic data ‘surprises’ that are propagandized out of China month after month – not too hot, not too cold, but just right – but in the latest US GDP data, as MarketWatch’s Greg Robb investigates, mystery theater comes to American government data…
It is a case that would make Sherlock Holmes proud.
Growth in the first quarter smashed expectations, fueled in part by strong inventory building. According to the government, $32 billion of goods were added to inventories this quarter, or $128 billion annualized.
This stockpiling of goods boosted first-quarter GDP growth by about 70 basis points and helped propel growth to a 3.2% annual rate, well above forecasts.
The problem is that it is not at all obvious where these inventories came from. Goods have to come from somewhere, either produced by domestic firms or imported from abroad.
The mystery is that both production and imports fell in the first three months of the year, according to government data.
“You can’t stockpile what you do not import or do not produce,” said Robert Brusca, chief economist at FAO Economics.
The Fed reported last week that industrial output slipped at a 0.3% annual rate in the first quarter.
And the government’s GDP report estimates that imports fell 3.7% in the first three months of the year.
The one other explanation — that consumption fell sharply enough to leave businesses with unexpected unsold goods — also doesn’t fit the evidence, Brusca said.
Consumption did not fall faster than industrial production or imports to generate any surplus, he said. To be sure, spending on consumer durable goods fell 5.3%, the biggest drop in 10 years. Business spending on equipment was also weak.
“Any way you slice it, this GDP report…is an apparent mess,” he said.
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