Tuesday, December 22, 2009

Q3 GDP Revised Down Again, but Lacking in Importance

Bloomberg.com reports:

The economy in the U.S. expanded in the third quarter at a slower pace than anticipated as companies curbed spending and cut inventories at an even faster pace, reductions that have set the stage for an acceleration in growth.

The 2.2 percent increase in gross domestic product from July through September compares with a 2.8 percent gain previously reported by the Commerce Department in Washington.

Improved consumer spending combined with a record drop in stockpiles this year will promote increases in production that may keep the world’s largest economy growing well into 2010. At the same time, companies such as Dell Inc. point to gains in business investment that signal growing confidence the expansion will be sustained.

“All signals point to a strong fourth quarter,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Growth is shaping up at around 4 percent as the inventory cycle turns upward.”. . .

The 2.8 percent projected pace of growth was based on the median estimate of 73 economists in a Bloomberg News survey. Estimates ranged from gains of 2.5 percent to 3.7 percent. The GDP report is the third and final for the quarter. The government’s advance estimate two months ago was 3.5 percent.

Remember that these are annualized percentages. So what has happened is the GDP growth in the quarter was estimated 2 months ago at 0.875% (3.5% divided by 4). It is now estimated at 0.55%.

I was reviewing some numbers recently and saw that GDP for 1983 had been revised recently. Perhaps those revisions are final. Basically these numbers are useless to investors or, truth be told, voters or policymakers.

The CEO of Conagra was on CNBC yesterday. Was he bullish? Yes, on his company's performance. He is budgeting for a sluggish economy. Warren Buffett recently said that his company really had not seen much of an improvement in business. The Gallup polling yesterday showed the hiring/not hiring indicator at a completely miserable negative 3.

In the quote above, Mr. Gault may well be correct. But this will mean little for the long term. The Government continues to borrow and print as much money as, I suspect, all businesses in the U. S. will show as profit this year. All this "money" injected into the pockets of seniors, poor people, agribusinessmen, Big Finance, etc. will one way or another get spent. The deleveraging risks should be to deflate prices that have gotten above the ability of wages and savings to pay for them without ever-more frantic financing schemes. That is why as gifted a stock market forecaster as Barry Ritholtz both sees more stock market gains ahead but a flat market at best on average for years to come.

No disagreement here.

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