GDP

Believe it or not, today’s GDP numbers from BEA were not as bad as many feared. The decline of 3.8% fell short of the 5.5% to 6% decline some worried about. The decline is about what I expected, based on the coincident indicators (see earlier posting). However, the reasons for the smaller than expected numbers are not necessarily good. Imports declined faster than exports and inventories increased.
The other news was about prices. As the Wall Street Journal points out:

There was a sea-change in the inflation picture. The core price index (excluding food and energy) retreated to a 0.6% annual rate in the fourth quarter from 2.4% in the third, leaving the annual rate at a 2.2% gain.
But headline consumer inflation fell at a 5.5% annual rate, the biggest drop on record.

As a result, incomes and savings went up. But now the specter raised by some is that of deflation.
As will be said a millions times today, the GDP data underscores the need for action on the stimulus package. But the trade part of the equation also sends out a silent emergency signal — hidden by the overall economic news. The GDP was not a bad as expected because we reversed our normal trade pattern of buying more than we sell. Once there is an economic recovery, it is likely that the old problem of the trade deficit will come back. That is why we need an economic package that is both simulative and transformative.

One thought on “GDP”

  1. GDP – reality catches up with expectations

    Today’s revised GDP numbers show a much sharper decline in the 4th quarter of 2008 that previously reported — a 6.2% decline rather than 3.8%. However, the revised numbers are in line with the earlier expectations of a 5.5% to…

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