Economists’ View Of The GDP Revisions

From the WSJ Real Time Economics blog, here are some comments on the revision to fourth quarter GDP:

  • The surprise was a bigger than anticipated downward revision to consumption. Based on the retail sales figures, we had expected a marginal downward adjustment, but the revision was substantial, to a disastrous -4.3% from -3.5%. According to the BEA, the downside reflected new data on gasoline and natural gas demand. Coming on top of a 3.8% fall in the third quarter, this marked the second worst two-quarter performance in the post-war period, and the only worse two quarter showing, in 1980, was almost entirely concentrated in one of the two quarters. We’ve never before seen two straight quarters in which consumption declined near 4% annualized. –Ted Wieseman, Morgan Stanley
  • The fact that inventories were revised down between the advance and preliminary report is a positive, as it implies somewhat less of an inventory drag in the first half. The downward revision to fourth quarter real consumption could imply a worse trajectory for first quarter consumption, but it is hard to know for sure because we do not know how the revisions were spaced throughout the quarter. –Abiel Reinhart, J.P. Morgan
  • There will no doubt be those who see the significant markdown in private nonfarm inventories relative to the BEA’s advance estimate as a positive sign that foreshadows a smaller contraction in real GDP during the current quarter. Unfortunately, this will not be the case. Given the steep contraction in business and household spending, firms are still sitting on more inventory than they desire, and additional cuts in production are in order. We liken this situation to the current state of homebuilders who, as we have pointed out on many occasions, are chasing a moving target, i.e., falling sales, on the way down. In other words, even though they have slashed production of new homes, an ever-falling sales rate is making it difficult for them to catch up and induces deeper cuts in production. This is in essence now the situation the broader economy finds itself in. –Richard F. Moody, Mission Residential
  • Taken together these three comments seem to sum up pretty well the point at which we have arrived. Inventories are not as bloated as was thought so if the consumer starts spending somewhat there is the potential for some sort of a rebound. But will the consumer come to the party. As the economist from J.P. Morgan notes, we don’t know for sure what to expect.

    Given that the rate of decline in consumption has declined at an historical rate for an unprecedented two quarters it might make some sense to believe that it is near a bottom. After all, socks and underwear as well as other necessities do have to be replaced. Maybe I’m grasping at straws but I am still holding to a bounce back in the second quarter.

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