Beneath The Surface, Today's GDP Report Was Actually Good
But the report isn't that bad. In fact it was arguably good.
For one thing, most of the collapse was due to a stunning fall in military spending. That's not good for GDP, but it doesn't reflect the real underlying strength of the economy.
And it's mostly due to war drawdown. That's a good thing for everyone!
There was also a big decline due to a reversal of big inventory buildups.
The change in real private inventories subtracted 1.27 percentage points from the fourth-quarter change in real GDP after adding 0.73 percentage point to the third-quarter change. Private businesses increased inventories $20.0 billion in the fourth quarter, following increases of $60.3 billion in the third and $41.4 billion in the second.
Seeing a decline in inventory buildups isn't that big of a deal really. This number always goes back and forth.
What's key is that the numbers that really reflect the strength of the economy were much better.
Personal consumption, fixed investment, and equipment/software all grew nicely. This is the real economy humming along.
Real personal consumption expenditures increased 2.2 percent in the fourth quarter, compared with an increase of 1.6 percent in the third. Durable goods increased 13.9 percent, compared with an increase of 8.9 percent. Nondurable goods increased 0.4 percent, compared with an increase of 1.2 percent. Services increased 0.9 percent, compared with an increase of 0.6 percent.
Real nonresidential fixed investment increased 8.4 percent in the fourth quarter, in contrast to a decrease of 1.8 percent in the third. Nonresidential structures decreased 1.1 percent; it was unchanged in the third quarter. Equipment and software increased 12.4 percent in the fourth quarter, in contrast to a decrease of 2.6 percent in the third. Real residential fixed investment increased 15.3 percent, compared with an increase of 13.5 percent
So, less war, more business investment. This was a good report.