{"id":247510,"date":"2010-01-29T09:18:27","date_gmt":"2010-01-29T14:18:27","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/01\/29\/after-the-tape-dont-ignore-the-inventory-effect-in-gdp\/"},"modified":"2010-01-29T09:18:27","modified_gmt":"2010-01-29T14:18:27","slug":"after-the-tape-don%e2%80%99t-ignore-the-inventory-effect-in-gdp","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/247510","title":{"rendered":"After the Tape: Don\u2019t Ignore the Inventory Effect in GDP"},"content":{"rendered":"

Note: This column, which originally ran as the Ahead of the Tape<\/a>, has been updated with the actual GDP figures. <\/em><\/p>\n

The 5.7% jump in fourth-quarter gross domestic product was largely a function of slower inventory declines. But that doesn’t mean it’s invalid.<\/p>\n

\"\"The Commerce Department<\/strong> said on Friday that GDP rose at 5.7% pace in the fourth quarter, its fastest in three years. Slower liquidation of inventories held in warehouses and stockrooms is contributed about 3.4 percentage points of that growth.<\/p>\n

How so? Production collapsed during the recession as companies sold from their existing inventories but didn’t order new goods, because of uncertainty about future customer demand. These inventory declines dragged on GDP for six consecutive quarters, the longest streak on record since 1948.<\/p>\n

Now that the pace of liquidation is slowing, those changes are showing up as a boost to GDP growth. Some economists prefer to look at final sales to domestic purchasers, a subset of GDP that doesn’t include inventories and trade, to better gauge U.S. economic activity. That category rose at a 3.9% annualized pace in the fourth quarter.<\/p>\n

But inventories shouldn’t be ignored. Eventually, inventory-led production gets factories humming and provides income to workers, which supports consumer spending, the biggest component of GDP.<\/p>\n

“That’s how recoveries become self-sustaining,” says Dean Maki<\/strong>, chief U.S. economist at Barclays Capital<\/strong>. And given the unusually deep inventory cuts during this recession, he adds, “the kick as production simply catches up to sales will be larger in this recovery” than in the recent past.<\/p>\n

Considering the fourth-quarter increase, average GDP growth in the first two quarters after the recession came in above 4%, topping the average 2.3% seen after the past two recessions, according to IHS Global Insight.<\/p>\n

Concerns persist that the economy’s momentum could fade, but there are signs that demand is improving. Consumer spending, for example, rose at a 2.7% annualized rate in the three months through November, excluding auto purchases, which were inflated by the government’s cash-for-clunkers program.<\/p>\n

Inventory-led growth can’t last forever. But it’s a fine way to start.<\/p>\n

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Note: This column, which originally ran as the Ahead of the Tape, has been updated with the actual GDP figures. The 5.7% jump in fourth-quarter gross domestic product was largely a function of slower inventory declines. But that doesn’t mean it’s invalid. The Commerce Department said on Friday that GDP rose at 5.7% pace in […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-247510","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/247510","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=247510"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/247510\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=247510"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=247510"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=247510"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}