Friday, January 27, 2012

Economists React: Not Loving This Morning's GDP Numbers

From MarketBeat:

Economists Scramble to Poke Holes in GDP Report
Earlier, Steve-O (if Kansas can label me Gongo before he heads out the door, I can hand out knicknames, too) pointed out that inventory building had contributed a big chunk of this morning’s GDP report.
Since then, our inboxes have been flooded with emails from economists reiterating that and other reasons why this GDP report, despite being the best of 2011, is nonetheless a downer.
That helps explain why Dow futures are now down 61 points, S&P futures are off 7 and Nasdaq futures are down 7. Ten-year Treasury yields are down to 1.93%.
Dan Greenhaus, chief global strategist at BTIG, flags the key numbers:
Consumer spending growth, which accounts for roughly 70% of GDP, continues to be restrained by spending on services.  Services spending is roughly 65% of all consumer spending and if it is not growing robustly (it rose by just 0.2% in Q4), then overall consumer spending cannot grow robustly and by extension, GDP cannot grow robustly.
Inventories rose by $56 billion in Q4, the largest build since Q3 2010.  This contributed 1.94 ppts to growth (70% of the headline rate of growth) which is why real final sales, which exclude the impact of inventories, rose by just 0.8% in the quarter.
As we enter 2012, the U.S. has a minor head of steam however we, like many, expect a drop off in growth rates to start the year.  The composition of growth in Q4 isn’t exactly what one would have hoped for, given the build in inventories.  But we have been talking for several years now about a slower growth, lower return environment.  Today’s data only reinforces that position and that belief.
Steven Ricchiuto at Mizuho Securities digs deeper into the inventory build and doesn’t like what he finds:
The problem with the inventory build is that it is large auto related and the current build rate appears out of line with demand. Even the upward trend in corporate investment spending appears to be losing momentum despite strong corporate balance sheet and excess cash holdings.
Jim Baird, chief investment strategist at Plante Moran, sees the engine of the economy running on fumes...MORE