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GDP Better on the Surface, but Disappoints; Big Week for Economic Data Ahead

GDP for the fourth quarter of 2011 was released on Friday,

By Dr. Joe Webb
Published: January 29, 2012

GDP for the fourth quarter of 2011 was released on Friday, and it was +2.8%. On the surface, it looked good, even though it did not meet the expectations of forecasters. The prognosticators had thought that it would be +3% or more, but were disappointed by the miss, and when they looked into the details of the report, they did not like what they saw. Most of the bump up was from inventory building. This is why it's so important to have a longer-range look at things, and look at GDP and other indicators on a year-to-year basis. First, the first reports of GDP are based on real data for about six weeks and estimates for the rest of the quarter. Second, there is a tendency for the Bureau of Economic Analysis to temper those estimates on yet more estimates and forecasts of outside economists. By the time we get next month's estimate, the BEA will have more real data for their estimate. Finally, at the end of March we'll have a much better report in terms of data completeness. So what is the problem with inventory building? The answers will drive you nuts, and beg for that one-armed economist. On one hand, inventory building is good because it shows positive expectations about future sales of goods. On the other hand, inventory building is bad, because it means that sales are terrible, and it's not so much building as it is warehouses piling up with goods because nobody wants them. No one really knows, but that never stops them from guessing. We get a lot of economic data this week, and the flow starts on Wednesday with the ADP employment report (ol' unreliable, as some might call it) and the ISM manufacturing index (it was strong last month). On Thursday, people will look for more clues about employment in the weekly jobless claims (they've been much better the past two months), and the productivity data. Then on Friday, we get the most important report of them all, the January unemployment report. This month it's especially critical from a statistical basis because it's the time when the Bureau of Labor Statistics makes some rather large adjustments to their population and other figures. Look at the fine print in this one, don't just go by the headlines. They make yet more revisions to data for specific industries next month. If the new productivity data show a greater gap with the GDP data than it does now, the employment report is likely to be flat. Also on Friday we get December printing shipments. November's shipments were not good, unfortunately, and the printing employment data for December indicated that December would be disappointing as well. Below is the summary of the macroeconomic indicators; we'll revise it next week with the new productivity data. It looks like inflation pulled back in the short term, and real earnings rose. That's good news, even though the year-year data were not good. I added a column that shows the change in these data since the start of the recession in December 2007. They are not annualized numbers but are the change since that date. Here's the table; click to enlarge.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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