Fourth Quarter Growth Numbers Suck

The mainstream news media have been trying to spin last quarter's 2.8% growth rate as some sort of good news. It wasn't. It stunk.

[T]hat meager 2.8 percent annual growth really isn’t what it seems to be. 

That’s because 75 percent of that 2.8 percent growth involved businesses restocking inventories. Who says? The Department’s Bureau of Economic Analysis, which released this data. 

So people like you and me weren’t really buying all that stuff in the last months of 2011. It was businesses buying stuff and putting it on their shelves in hopes that people would soon come along and buy it from them.


Inventories will only build up so much before companies say “no more.” So these restockings are not considered a particularly good thing when the ultimate buyer — the consumer — is still uncooperative. 

But that wasn’t the only scary thing in the GDP report. In fact, it wasn’t even the most important thing. 

In order to get to that 2.8 percent growth the Commerce Department used a very unrealistic level of inflation in its calculations. 

Let me explain: The government comes up with a figure on how much it thinks the economy grew, or shrunk. Friday’s figure was a first estimate for the fourth quarter, so most of the numbers used in the calculation are only guesstimates anyway. (But that’s for a different story.) 

The government then takes that growth figure, subtracts the rate of inflation and comes up with the real growth it reports in its press release. 

So, in other words, if inflation is rising it reduces the rate of actual, after inflation, growth — which is the figure that Washington reports. 

In Friday’s number the government used 0.4 percent as the rate of inflation. Zero. Point. Four. Percent. 

In which country is inflation that low? Certainly not in America. Absolutely not in the last four months of 2011. 

The consumer price index, which is put out by the US Census Bureau, had prices up 3 percent for the year. 

And the rate of inflation used in calculating the third-quarter 2011 GDP was 2.6 percent; in the first and second quarters, combined, the rate was 2.5 percent; it was 1.9 percent in the fourth quarter of 2010.

Just for comparison, last year's fourth quarter GDP, which was also inflated was over six percent.

Read more: http://www.nypost.com/p/news/business/dial_if_this_story_makes_your_eyes_mUsVVoUaMuMRt4AK2DlXxJ#ixzz1l2wwCNud