Disturbing GDP Commentary

The Most Important Messages From the 4Q GDP Report

Some very quick headline background. Although it may have been a bit lost in the shuffle, a rise in inventories contributed to the headline GDP number. Academically, rising inventories are a positive for GDP in that they are additive to the number. Of course actual businesses may see it a bit differently, no? Here’s what we believe to be one important observation. In almost classical terms, US recessions in the post war period have been led by inventory corrections. The key character trait is “led” by inventory corrections. Absolutely classic stuff. But in our current circumstances we’re now supposedly 14+ months into the current recessionary interlude and it’s only in the last quarter that an inventory problem is now occurring.

Oh oh!

You can see that we’ve shaded in the anomaly that is the current cycle. Point blank, we have not seen this type of a dichotomy anywhere in the US postwar period. For now, this is something completely different. THIS is probably the key message of the GDP report that we believe has been virtually completely neglected in mainstream financial reporting. Key point being, not even lower prices could spark consumption strength. This is quite the oddity in the post war period shown as households have always used price weakness to increase real consumption. Always...until now.

Oh oh!