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Home Publications Blogs Beat the Press GDP Growth: It's the Inventories Stupid!

GDP Growth: It's the Inventories Stupid!

Friday, 30 April 2010 10:52

This is in the preemptive strike category. It seems from initial reports that no one bothered to notice that half of this quarter's GDP growth (1.6 percentage points) was driven by inventory accumulation. If we pull out inventories, final demand grew at a 1.6 percent annual rate, almost exactly the same as the 1.7 percent rate in the 4th quarter of 2009 and the 1.5 percent rate in the 3rd quarter of 2009.

In other words, we are still looking at a very weak economy; one far weaker than would be expected coming out of such a severe downturn and one which may not even be growing fast enough to create any jobs at all.

Comments (11)Add Comment
written by izzatzo, April 30, 2010 12:52
Why be so pessimistic about inventory build up Mr Gloomy. Be cheery and optimistic like Larry Kudlow having a flat tire: "Wow, three still have air!"
written by jm, April 30, 2010 4:23
My interest piqued by a graph at another econ blog, I just extrapolated the BLS manufacturing employment data series. At the average rate of 500+k jobs lost per year since 2000, 2029 will be the year in which US manufacturing employment declines to zero.
Supply-side at work?
written by skeptonomist, April 30, 2010 5:47
People still have to be hired (or not fired) to build up inventory and it will take some time for demand to be generated from this. If supply-side stimulus works at all, inventory will have to be built up initially in a recovery.
Stupid is the key here!
written by bailey, April 30, 2010 6:56
And, let me add - the strongest part of the "very weak economy" is Gov't. give-aways & Gov't. money printing.
NPR, of course
written by Jonathan Lundell, April 30, 2010 7:36
I heard a brief note the other day, I disremember the program, that mentioned only the inventory buildup. The entire 10-seoncd bit was on the economy doing so much better because inventories were rising.
Manufacturing really doesn't matter much anymore
written by jm, April 30, 2010 7:59
Manufacturing employment as a percentage of total work force is now less than 9%. In 1979, before the Reagan tax-cuts began the destruction of US manufacturing by sending the deficit and interest rates up and giving Japan's exporters a huge boost by pushing the yen down to 250 to the dollar, fully 21.6% of the work force was in manufacturing.

Compared to 20 -- or even just 10 -- years ago, manufacturing activity is far less meaningful as a gauge of US economic vigor.
I saw it was half inventories
written by Robert Oak, April 30, 2010 8:26
written by Anthony, April 30, 2010 9:21
Dean Maki points out that cyclical parts of the economy are picking up: business spending and consumer spending are up in latest GDP number. Households have more stock market wealth and more income from higher production (more hours worked for those with jobs).

Joe LaVorgna says that housing permits are up significantly in Q1. Home prices are up. A slower pace of de-leveraging is giving households more income to spend.

written by scott, May 01, 2010 2:58
Welcome to the stagflation your false economic dichotomy model fails to show. The recovery will be weak because even though Federal spending is the only real driver, a disastrous political climate and this venal media-ocracy will keep effective gov't from doing anything.
rising inventories imply...
written by David Cay Johnston, May 01, 2010 10:59
...future sales growth, but a) managers who are building up inventories could be wrong, b) take-or-pay contracts influence deliveries, c) how much of this involves long-term purchases like jetliners where payments to defer delivery are expiring?

So let's not count or economic growth chickens before the growing basket of eggs hatch into sales. Dean is right on this.

Also, after 30 years of supply side policies (including subsidies) is anyone, even Scott, surprised that demand side is weak?

Moderation in all things creates balance. Labor needs capital and capital needs labor.

Pushing down wages, concentrating economic growth in ways that creates massive dis-utility and burdening future income with debt repayments, especially for artificially inflated assets and extra especially for unproductive artificially inflated assets like housing, means a weaker economy because of weakened demand, just as policies that inhibit capital formation weaken supply.

Our problem is not a lack of supply -- the world is awash with private capital with no place to profitably be invested. Our problem is a lack of demand.

The economic data may indicate widespread hope in the corporate sector that demand will grow. Or just mistaken judgments and expiring contract terms on deferred deliveries.
Is this the REAL David Cay Johnston?
written by Chuck Mertz, May 01, 2010 4:19
...posting on and off on Dean Baker's blog?

I want to book both of you for my show again, I'll be sending you an e-mail soon.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.