I Call “Shenanigans” on GDP!


At the risk of sounding shrill, I am compelled to point out the quantum bogosity of this 3.9% GDP number: It is highly dependent upon a rather suspect reading of Price Increases/Indexes for Gross Domestic Product: The Price Deflator rose a much less than expected .8% vs expectations of 2%.

The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), exports, federal government spending, equipment and software, nonresidential structures, private inventory investment, and state and local government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The slight acceleration in real GDP growth in the third quarter primarily reflected accelerations in PCE and in exports that were partly offset by an upturn in imports, a larger decrease in residential fixed investment, and a deceleration in nonresidential structures.

Price Indexes for Gross Domestic Product was an astounding low 0.8% (Table 4). In other words, this report benefited as much from higher inflation as it did from true growth.

I obviously take issue with that (as Crude Oil crosses $94 for the first time).

To highlight the impact that this 0.8%
price gain had on the reported REAL GDP:
that 0.8% gain matches a level last
seen in 1998; prior to that,
the previous deflator gain of .8% was n 1963.

Peter Boockvaar of Miller Tabak observes that "with the dramatic
upturn in energy prices and other commodities, the decline in the Price Deflator
is obviously unsustainable. The consensus today for Nominal GDP was 5.1% and
came in today at 4.7%, thus weaker than expected. Q3 GDP was fine ,
but not as good as the headline report reads."

The average of the price index since Q1 2004 to Q2007 was 2.98, ranging froma low of 1.7% to a high of 4.2%. Thus, if the deflator matched consensus, it would have generated a GDP of 1.9%; if it was at its recent 3 year average of 2.98%, GDP would be ~1%.

I suspect that a more accurate GDP reading would be somewhere in between . .


GDP Price Shenanigans!


Chart courtesy of Bloomberg




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