By now I imagine you know that GDP contracted at an annual rate of 3.8% in Q4, beating economists’ “consensus” prediction of a 5.4% decrease. (Why do people insist on calling an average of forecasts a “consensus?”) A few thoughts:
- You can waste a lot of time looking over GDP statistics. Go to the news release page and download the Excel tables in the right-hand sidebar.
- The “consensus” is that the reason for the positive surprise was an unexpected increase in inventories. (Goods added to inventory count as production, even if they aren’t bought off the shelves.) But . . .
- With any set of numbers that add up to their totals, you can’t really find true causality. All you can do is point out numbers you think are particularly interesting. Another way to look at it is that the numbers were helped out a lot by short-term deflation, particularly due to falling gasoline prices. Personal consumption expenditures (PCE) , the biggest component of GDP by far, fell at an 8.9% annual rate in nominal terms. But the price deflator for PCE fell by so much – an annual rate of 5.5% – that in real terms PCE only fell at a 3.5% annual rate. That fall in prices was almost entirely due to the fall energy prices, which is highly unlikely to be repeated. But do people consciously reduce their spending in nominal or real terms? Nominal, I would think. So, as I “predicted” in December (I always have so many caveats that it’s not really fair to say that I ever predict anything), Q4 was better than expected, but Q1 is likely to be worse than predicted (before today, that is, since everyone is revising their Q1 forecasts down right now), since people will keep ratcheting down spending in nominal terms, but we won’t be bailed out by such a steep fall in prices.
- The savings rate climbed from 1.2% to 2.9% – but it still has a long way to go (it was over 10% in the 1980s).
- Real expenditures on food were down 4% (that’s not an annual rate, that means people spent 4% less on food in Q4 than in Q3). Ouch. I hope that was mainly a shift from restaurants to eating at home.
Back to more useful things.
Originally published at The Baseline Scenario and reproduced here with the author’s permission.