This note does not present a rote rundown of the revised GDP data for the fourth quarter. I am sure you can get that from other sources. Instead, it focuses on what I take to be the two main takeaways, which are not particularly incremental, but lean on the side of demand growth remaining firm.
First, the two quarter change of final sales to private domestic purchasers (FSPDP) is now reported to be running at 2.9% (ar), which is well above trend. And there is no evidence in the trailing data of any tendency to accelerate or decelerate through the half year, as the Q3 and Q4 growth rates there are virtually the same.
I like to follow a kludge that is meant to apply the GDP vs GDO comparison to final sales of domestic purchasers, by assuming that the statistical discrepancy is distributed proportionately across the various components of aggregate demand. That generates a 2-quarter growth rate of 2.1%, which is not so far above trend. However, the Q4 figure looks stronger than the Q3 figure within that calculation. And separately, there are reasons to suspect that GDI and GDO are identifiably downward biased in recent quarters. So, I think a reasonable best guess is that we should be working with the assumption that final sales to private domestic purchasers has been growing at about 2 ½% during the past two quarters, with some marginal tendency to accelerate, simply because I have no basis for dialing down the headline FSPDP growth rate on the basis of a change of the statistical discrepancy. This involves a kludge, as mentioned, but as often I am going for less wrong.
Not much has changed here, including in cycle-to-date terms
Data are as revised to Q4.
Second, the flow of inventory investment was revised down, which meant that the swing in that flow chopped almost 30 bps (ar) off the total demand growth rate (ignoring knock ons to inventory demand which would provide a minor offset). As a result of this, though, the flow of inventory investment is now virtually indistinguishable from “normal,” which I have defined several times in earlier notes, a process I will not reiterate here. Accordingly, there is neither a pent-up demand nor pent-up pothole from this source. Previously, it looked like there was a very minor pothole to develop there.
Meanwhile, the inventory/sales ratio remains below its slowly declining secular trend line. This reinforces the point made immediately above for those who think the level of inventories is a relevant variable for timing the impetus or drag from the inventory cycle. But I am not among such people, again for reasons I have discussed in earlier notes. If anything, the signal from the level of the I/S ratio is often backwards to the coming impetus or drag from the inventory cycle. But I am a full service economist, so I report the ratio anyway.
The bottom panel is just to complete the thought
Data are as revised to Q4.
[1] We do not yet have data on GDI for Q4. Accordingly, there is also no estimate of GDO, which is the average of GDP and GDI. But for the purposes of this exercise, I assume that GDP and GDI (and thus GDO) grew at the same rate during Q4.
