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 I Call "Shenanigans" on GDP!

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gastaoss



Number of posts : 440
Registration date : 2007-07-01

PostSubject: I Call "Shenanigans" on GDP!   Wed Oct 31, 2007 10:11 pm

8:01 PM (3 hours ago)
I Call "Shenanigans" on GDP!

by ritholtz
Shenanigans! At the risk of sounding shrill, I am compelled to point out the quantum bogosity of this 3.9% GDP number: It is highly dependent upon a rather suspect reading of Price Increases/Indexes for Gross Domestic Product: The Price Deflator rose a much less than expected .8% vs expectations of 2%.<blockquote>The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), exports, federal government spending, equipment and software, nonresidential structures, private inventory investment, and state and local government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The slight acceleration in real GDP growth in the third quarter primarily reflected accelerations in PCE and in exports that were partly offset by an upturn in imports, a larger decrease in residential fixed investment, and a deceleration in nonresidential structures.</blockquote>Price Indexes for Gross Domestic Product was an astounding low 0.8% (Table 4). In other words, this report benefited as much from higher inflation as it did from true growth.
I obviously take issue with that (as Crude Oil crosses $94 for the first time). To highlight the impact that this 0.8%
price gain had on the reported REAL GDP: that 0.8% gain matches a level last
seen in 1998; prior to that, the previous deflator gain of .8% was n 1963.

Peter Boockvaar of Miller Tabak observes that "with the dramatic
upturn in energy prices and other commodities, the decline in the Price Deflator
is obviously unsustainable. The consensus today for Nominal GDP was 5.1% and
came in today at 4.7%, thus weaker than expected. Q3 GDP was fine ,
but not as good as the headline report reads."
The average of the price index since Q1 2004 to Q2007 was 2.98, ranging froma low of 1.7% to a high of 4.2%. Thus, if the deflator matched consensus, it would have generated a GDP of 1.9%; if it was at its recent 3 year average of 2.98%, GDP would be ~1%. I suspect that a more accurate GDP reading would be somewhere in between . .
.[color=#FFFFFF]>
GDP Price Shenanigans!Chart courtesy of Bloomberg





[color:82f0=#FFFFFF:82f0]>

Sources:GROSS DOMESTIC PRODUCT: THIRD QUARTER 2007 (ADVANCE)
WEDNESDAY, OCTOBER 31, 2007
http://www.bea.gov/newsreleases/national/gdp/2007/pdf/gdp307a.pdf
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htmEconomists React: GDP Growth ‘Not Built to Last’
October 31, 2007, 10:16 am
http://blogs.wsj.com/economics/2007/10/31/economists-react-gdp-growth-not-built-to-last/




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gastaoss



Number of posts : 440
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PostSubject: Re: I Call "Shenanigans" on GDP!   Wed Oct 31, 2007 10:12 pm

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gastaoss



Number of posts : 440
Registration date : 2007-07-01

PostSubject: Re: I Call "Shenanigans" on GDP!   Wed Oct 31, 2007 10:12 pm

1:00 PM (10 hours ago)
GDP, Durable Goods

by ritholtz
Consensus for Q3 GDP is 3.2%; the consensus range was from 2.5% to 4.0%. I am on the low end of the range, but given how an under-reported inflation number enhances GDP, a higher data point would not surprise me. NT's Asha Bangalore notes:<blockquote>"Durable goods orders fell 1.7% in September, following a 5.3% drop in the prior month. The 38.7% drop in orders of durable defense items was the major cause for the drop in durable goods orders. Excluding defense, bookings of durable goods increased only 0.7%. Orders of non-defense capital goods rose 4.4% in September after a 12.2% decline.
The more troubling issue is the fact that both orders (-8.4%) and
shipments (-1.1%) of durable goods are weak on a year-to-year basis."</blockquote>A few of Asha's more interesting charts as we await GDP at 8:30 this morning:
Orders and shipments of non-defense capital goods excluding aircraft, the less volatile
component of durable goods, also send a similar message:





Source:
Wilting Durable Goods Orders - Precursor of More to Come?
Asha Bangalore
Northern Trust, Global Economic Research October 25, 2007
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0710/document/dd102507.pdf





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