The US Federal Government’s Bureau of Economic Analysis released its 4th quarter 2009 GDP statistics today. The news– 5.7% annualized GDP growth, led primarily by a large jump in inventories. Economist David Rosenberg made the following observations:
First, the report was dominated by a huge inventory adjustment — not the onset of a new inventory cycle, but a transitory realignment of stocks to sales. Excluding the inventory contribution, GDP would have advanced at a much more tepid 2.2% QoQ annual rate, not really that much better than the soft 1.5% reading in the third quarter.
Second, it was a tad strange to have had inventories contribute half to the GDP tally, and at the same time see import growth cut in half last quarter.
Third, if you believe the GDP data — remember, there are more revisions to come — then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising — just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we’re not buyers of that view.
In the fourth quarter, aggregate private hours worked contracted at a 0.5% annual rate and what we can tell you is that such a decline in labour input has never before, scanning over 50 years of data, coincided with a GDP headline this good. Normally, GDP growth is 1.7% when hours worked is this weak, and that is exactly the trend that was depicted this week in the release of the Chicago Fed’s National Activity Index, which was widely ignored. On the flip side, when we have in the past seen GDP growth come in at or near a 5.7% annual rate, what is typical is that hours worked grows at a 3.7% rate.
No matter how you slice it, the GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.
Government spending, at all levels, is a depredation on the private productive economy– the government produces nothing and can spend only what it taxes, borrows or inflates out of the rest of the economy. Technically speaking, government spending should be dragged out of GDP stats as well, not just this quarter but all quarters.
Meanwhile, yesterday Helicopter Ben was reconfirmed by a 70-30 vote of the Senate, ensuring the financial community that another tidal wave of cash is just over the horizon should it be necessary.
With a sworn inflationist back in the saddle (okay, he never left) and GDP surging at an annualized rate of 5.7% as if massive government intervention were a sound foundation for economic recovery, this market should be heading for new highs, right? Wrong. The markets swooned, continuing their miserable march downward, as they have all week, with the Dow closing Friday -53, NASDAQ -31 , and the S&P 500 down 10 with an ominous, last-minute, high-volume selloff as if to seal the deal.
Superstitious soothsayers at CNBC insist that a negative January close means “bad luck” for the markets all year long. One thing seems increasingly certain at this point… this “recovery” is taking its last gasps of noxious air and the broad market has already kicked the bucket.