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According
to the Bureau
of Economic Analysis’ (BEA) “advance” estimate, 3Q2014 growth in real U.S.
gross domestic product (GDP ) was pegged
at a seasonally adjusted and annualized rate of 2.6% -- or 2.4 percentage points
lower than 3Q’s 5.0%. Analysts had expected
a more modest decline to 3.2% (ranging from +2.2 to 3.5%). Personal consumption
expenditures (PCE) and private domestic investment (PDI) contributed to 4Q
growth, while net exports (NetX), and government consumption expenditures (GCE)
subtracted from it.
The
4Q headline was cut nearly in half relative to 3Q by imports (-1.55%), exports (-0.24%),
government spending (-1.20%), and fixed investment (-0.84%). Inventory growth (+0.85%)
and consumer spending (goods: +0.14%; services: +0.52%) were the only bright
spots. As we have frequently pointed out in the past, however, “what
inventories give now, they take away in the future” unless the economy is in
the midst of sustained and robust growth. Also, a majority of consumer spending on
services was concentrated in healthcare
-- including insurance premiums, whose connection to the real economy is
somewhat tenuous.
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Consumer
Metrics Institute made an interesting observation:
“As
mentioned last quarter, plunging energy prices are likely playing havoc with
many of the numbers in this report. U.S. at-the-pump gasoline prices fell 33%
quarter-to-quarter -- pushing all consumer oriented inflation indexes firmly
into negative territory. During 4Q (i.e., from October through December) the
seasonally adjusted CPI-U index published by the Bureau of Labor Statistics
(BLS) was solidly dis-inflationary at a -2.47% (annualized) rate, and the price
index reported by the Billion Prices Project (BPP)
was significantly more dis-inflationary, dropping [at] an astounding -8.30% annualized
rate during the quarter.
“Yet
for this report the BEA still assumed a very mildly dis-inflationary annualized
deflator of only -0.09%. The disparity between the BEA’s and the BLS’s deflators
raises some serious consistency issues. Over reported inflation (or underreported
dis-inflation) will result in a more pessimistic growth data; if the BEA’s nominal
numbers were corrected for inflation using the line-item appropriate BLS consumer
and producer price indexes, the economy would be reported as growing at an
implausibly high 7.17% annualized rate. Clearly the BEA’s deflator is
troubling, but using the more reasonable deflators from the BLS generates
nonsensical growth rates when applied to the BEA’s nominal data; this suggests the
BEA's initial nominal data may be more overstated…than reasonable deflators can
handle.”
We
would observe that the BEA’s GDP deflator typically “travels” in the midrange
of the BLS’s CPI, so it will be interesting to see if the CPI turns higher in
subsequent quarters.
The foregoing comments represent the
general economic views and analysis of Delphi Advisors, and are provided solely
for the purpose of information, instruction and discourse. They do not
constitute a solicitation or recommendation regarding any investment.
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