Q4 '06 GDP: 2.5%
Q4 GDP (Final) for 2006 came in at 2.5%. This was revised to above the previously downwardly revised report but above the downwardly revised consensus expectations of 2.2% (Got that?)
Markets rallied on the news that 4 - 6 months ago, GDP was bad, but not quite as bad as previously believed. (So much for the market as a forward looking discounter).
A quick lesson in Commerce data reporting for the newbies out there: We get 3 GDP reports (on I believe the last Thursday) of each month following a quarter's end: Advance (1/31), Preliminary (2/28) and Final (3/29).
Q4 GDP took a particularly tortured route: the Initial report was surprisingly high, and the individual components clearly conflicted with data already released (we noted this number was a fantasy here). The next revision surprised people to the down side, as it took ~a third off og GDP.
Our original guestimate was for 2 - 2.5%, and this number is consistent with that.
Peter Bookvar notes: "An
upward revision to inventories, a better trade deficit, and Govt spending" as the main factors in the upward revision. Personal spending was left unchanged, and CapEx spending (equipment, software and residential construction) went down. This bodes poorly for further growth, as we have long been told that Business CapEx was ready to take over when the consumer finally falters. That is looking increasingly unlikely.
The WSJ noted:
"Profits are being squeezed by receding demand and rising labor costs. Retail sales were flat in February after inching 0.1% higher in January. Business sales fell 0.7% in January and had gone up 1.9% in the previous 12 months. The Labor Department reported recently that unit labor costs swelled by 6.6% in the final quarter of 2006, up from 1.1% in the third quarter. Labor costs rose an average 3.2% in 2006, which had been the sharpest annual increase since 2000 . . .
The biggest component of GDP is consumer spending. Fourth-quarter spending by consumers rose an unrevised 4.2%, which was above the third quarter's 2.8% advance. Consumer spending accounts for the lion's share of economic activity -- about 70%. It contributed 2.93 percentage points to GDP in the fourth quarter."
Here's a quick chart:
Chart courtesy of Barron's
>
Source:
Fourth-Quarter GDP Revised Up
To 2.5% on Inventory Investment
By JEFF BATER
March 29, 2007 9:41 a.m.
http://online.wsj.com/article/SB117517137375453111.html
Thursday, March 29, 2007 | 10:00 AM | Permalink
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Comments
Yet another "upward revision"........how can we use these numbers any longer if they are just going to be revised to suit someone's agenda and purpose? and a day before the qtr end...I wonder if they will do the same to the PCE deflator tomorrow....anyone want odds???
Ciao
MS
Posted by: Michael SChumacher | Mar 29, 2007 10:15:31 AM
The 1st two are always estimates subject to revision -- this is the final.
Now, why anyone really cares at this point is the better question
Posted by: Peter | Mar 29, 2007 10:25:02 AM
Isn't there an actual Final final that will be released in May? In the Feb 28th release they changed Q3 2006 to 2.0.
Any guesses on Q1 07?
Posted by: Josh | Mar 29, 2007 11:01:30 AM
It not that they change them...they've always done it however that it's such a surprise to the market. Much like the housing "surprise" of monday. Excuse me...."unexpected"...sorry had my terms incorrect.
Ciao
MS
Posted by: Michael SChumacher | Mar 29, 2007 11:17:05 AM
At the same time as the GDP release, a very good initial jobless claims report was released. That had a lot to do with the rally. As you said, GDP from Q4 doesn't mean much right now.
Posted by: Steve | Mar 29, 2007 11:23:41 AM
That was a "very good jobless claims". Please my man.
Posted by: Lenny Perts | Mar 29, 2007 11:45:29 AM
How else would you characterize it? The expectations were for 320K and it came in at 308K. Also, the four week moving average fell from 325K to 318K.
Posted by: Steve | Mar 29, 2007 11:53:42 AM
Government error as they seasonally adjusted to low, hence they are forced upward revisions(as the last 2 sets had). Continuing claims continue to edge upward since peeking a year ago(almost from this date).
They should abolish releasing 'intial' claims, as they are a waste of time and poorly caculated. Only continuing claims should be released on a 4 week moving average. That is all we need to know and that is all the government should provide.
Posted by: Lenny Perts | Mar 29, 2007 11:57:36 AM
Only continuing claims should be released on a 4 week moving average.
The 4 week moving average of continuing claims was down as well.
Posted by: Steve | Mar 29, 2007 12:03:28 PM
The 4 week moving average of continuing claims was down as well.
Not by much a revision wouldn't eliminate. The slow steady rise in claims yry is the key and it has been rising........slowly.
Posted by: Lenny Perts | Mar 29, 2007 12:08:27 PM
"Yet another "upward revision"........how can we use these numbers any longer if they are just going to be revised to suit someone's agenda and purpose?"
MS - you might want to consider a different method....
Posted by: Ironman | Mar 29, 2007 4:15:07 PM
There are so many variables and compilations that this is hard to gauge (witness the range of forecasts often given by Reuter's or Bloomberg's anonymous "economists").
In this latest instance Imports, a subtraction from GDP was reversed largely because oil prices sank and industrial materials (lumber) were big reductions. The settled 'final' picture has PCE stats contributing 117% of the GDP growth with autos taking back more than half.
There is some suspicion that consumers will not be able to keep this GDP number above 2% in the next quarter.
Of course there are serious doubters about the compiled OER (accounting for nearly 1/4 of the CPI stat) being able to post 3.6%? given the inventory build and a vacating construction force, but we shall see, if the owners who counted afford that, can afford the, officially at least, rising rents.
Posted by: calmo | Mar 29, 2007 11:21:41 PM
