The U.S. economy increased at a bigger-than-expected gain, which was driven more by slower inventory liquidation than by consumer spending. As a matter of fact, the slower fourth-quarter inventory drawdown added 3.39% to GDP. (Folks, it is about statistics. If you go from 2 to 1, that is a 50% decline; however, if you go from 1 to 2, that is a 100% increase. That is exactly what is happening to these inventory numbers. Businesses can only allow inventory to go so low. So what we are seeing here is that businesses have reached the point where the drawdown has now reached a level where a smaller percentage decline is really an increase. Like I said, it is all about the statistics!)
As mentioned, inventory drawdown added 3.9% to GDP; while consumer spending contributed about 1.5%. Consumer spending expanded at a very moderate rate but definitely remains constrained by a very weak labor market (It's all about jobs, stupid.) and household deleveraging. When you have close to 70% of GDP growth accounted for by inventory drawdown, that is not a real strong endorsement for economic health. And, keep-in-mind that these GDP statistics will be revised twice over the next two months. Right down, I would say those revisions will be adjusted downward, as the numbers were for the third quarter of 2009.
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