The U.S, Bureau of Economic Analysis released its third estimate for December quarter’s GDP growth, coming in at 6.9%. This was an increase from 2.3% in the September quarter but when the large impact from inventories are excluded the growth rate falls to 1.6% for the last quarter of the year.
GDP growth estimates can be distorted in various ways. One of them is that the full year growth rate is calculated using the change in GDP from the previous quarter to the current one and multiplying by four to get a full-year result. This means any particular increase or decrease that is out of the norm is multiplied by four, even though the item that caused the swing is not sustainable or will be reversed in subsequent quarters.
Probably the two best examples of this were the second and third quarters of 2020 due to the pandemic. While most quarter’s GDP results are in the low-single digits, the second quarter saw a 31.2% drop in GDP vs. the reality of about an 8% fall from the previous quarter and the third quarter came in with a 33.8% increase, or just over 8% growth quarter-to-quarter.
Inventory build distorted last quarter’s GDP growth rate
The latest example is the final estimate for December 2021 quarter’s GDP result. Companies build up or decrease inventory in any given quarter. If the changes are big enough, even though they will be subsequently reversed in the next quarter or two, this change can have a significant impact to the GDP calculation. The same can also be attributed to trade, but usually to a smaller scale then inventory.
Inventory swings largely cancel themselves out in the long run, but it can take a few quarters to balance out. Prior to 2021, when inventory changes negatively impacted GDP growth by 1.4% or 140 basis points for the year, since 2009 inventories yearly impact has been in a range of a negative 0.77% or 77 basis points in 2015 to a positive 1.13% or 113 basis points in 2009.
Over the course of 13 years inventories have negatively impacted GDP growth in 10 of the years and only positively impacted the calculation in three years.
The numbers below show the reported growth rate for each of 2021’s four quarters and what they were when removing the impacts from inventory and trade. When inventory is removed the first half of the year shows the economy was stronger than reported and weaker in the second half.
Without inventory impact
1Q 2021: Reported 6.3%. Without 8.9%
2Q 2021: Reported 6.7%. Without 8.0%
3Q 2021: Reported 2.3%. Without 0.1%
4Q 2021: Reported 6.9%. Without 1.6%
For trade it turns out that it was a drag on the reported numbers in each of the four quarters. This is shown in the without numbers below all being higher than the ex-inventory results from above.
Without inventory and trade impact
1Q 2021: Reported 6.3%. Without 10.5%
2Q 2021: Reported 6.7%. Without 8.2%
3Q 2021: Reported 2.3%. Without 1.4%
4Q 2021: Reported 6.9%. Without 1.8%
To see the fourth quarter’s GDP calculation broken down into its various components click on this tweet from Gregory Daco, Chief Economist at EY Parthenon.
Atlanta Fed model has March quarter’s GDP growth at 1.3%
The Federal Reserve Bank of Atlanta publishes data and a graph that estimates the GDP growth rate for the current quarter. The GDPNow model is showing the March quarter to have 1.3% growth compared to the Blue Chip consensus range of 0.8% to 2.8%. Keep in mind that the Blue Chip estimates shown in the graph are almost a month old (there is a delay between the numbers in the graph and their current forecasts). This compares to 2021’s GDP growth rate of 5.7% and 5.3% without inventory’s impact.
Also, the Atlanta Fed’s GDPNow projection is based on a formula from previous quarters and the impact of Covid-19 could have a material influence on the estimate.
GDPNow GDP forecast of 1.3%
Federal Reserve Bank of Atlanta, Blue Chip Economic Indicators and Blue Chip Financial Forecasts
Jefferies economists still “constructive on growth”
On a weekly basis Aneta Markowska, Jefferies Chief Economist, and Thomas Simons, Jefferies Money Market Economist, publish a report titled “Tracking the Reopening of the U.S. Economy with Real-Time Data.” It is a compilation of various economic indicators showing how the economy is performing long before many official U.S. government reports are generated.
The Jefferies U.S. Economic Activity Index finished last week at 100.4, roughly 2 points above its level a month ago, and nearly 6 points above its January 15 trough. However, it is down over 10 points from its high in late 2021.
US economy real-time data
Jefferies
Markowska and Simons wrote in their latest report that, “Our real-time activity index has held up well in recent weeks. Nearly all sectors posted modest improvements, with the notable exception of housing. This is the most rate-sensitive sector of the economy, and judging from mortgage purchase applications, the recent increases in mortgage rates are already weighing heavily on housing demand. However, that is not true for other sectors of the economy. Most notably, consumer activity remains very resilient and has not shown any cracks to date. On the contrary, most real-time indicators of consumer spending point to incremental upside in March, both in goods and services.”
They added, “There are many reasons to worry about the economic outlook: runaway inflation exacerbated by the Ukraine invasion and China COVID outbreaks, sharp increases in interest rates, and a yield curve which is about to invert. Yet, despite these headwinds, we have remained very constructive on growth, arguing that household finances are strong enough to shield consumption (including at the low end) from these shocks. So far, so good.”
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
