Fourth Quarter GDP (2021) – Strongest Year in Decades
WSJ reports
Stocks rose broadly Thursday morning after the GDP report, but they retreated later in the day, with the Nasdaq falling 1.4%, the S&P 500 dropping 0.54%, and the Dow Jones Industrial Average off 0.02%.
Thursday’s report contained warning signs. Most of the growth owed to companies’ restocking rather than people and firms buying stuff. In part, the rise in inventory investment reflected a rebound from super-low inventory levels in the summer. Inventory levels remain low because of persistent shortages. Excluding the inventory effects, output grew at a modest annual rate of 1.9% in the fourth quarter.
Americans reined in shopping toward the end of the quarter, according to other Commerce Dept. data on retail sales, as the Omicron variant of Covid-19 triggered a new wave of infections and higher prices cut into their paychecks. A separate Commerce Department report Thursday showed sales of durable goods such as long-lasting items (cars, refrigerators and bulldozers) fell in December.
And Why is that?
Two factors that helped drive last year’s expansion – a torrent of cash sent by Congress to house-holds and ultralow borrowing costs stoked by the Federal Reserve’s loose-money policies – are fading. Households have spent down some of the stimulus money. And the Fed reaffirmed this week its intention to raise interest rates, as early as March, to combat a sharp rise in inflation, which has damaged consumer confidence and outpaced the growth in workers’ wages.
Increased Interest rates hurts Main Street
Surplus aid-funds money are decreasing. A large pool of inactive labor exists. Threats of higher interest rates is better than the action (which is ridiculous). There will be surplus inventory and prices will drop. Planned production order quantities are surpassing or will surpass demand. The Feds (nobility) whacking Labor (the peasants) makes no sense as business’s poor planning, control of production, and the supply chain are the issues. Companies decreasing production orders, moving production orders out, and canceling them (if they can) will slow things down.
Whether this is business manipulating the supply chain as Paul Glastris (Washington Monthly) contends, the carnival will end. Someone will be looking to sell off inventories of finished goods cheaply (just like automotive does “every” end of model year), raw materials, or sit on inventory/material the costliest component of manufacturing.
What is going on?
On the automotive side, my son trades-in his oversized, well maintained, not-to-old Ford Expedition with 49,000 miles on it. Dealer calls him making an offer. In trade, he receives a new Ford Expedition and is paying $35 more per month.
Such is called moving inventory.
My other son is thinking of leasing a small four-wheel drive Jeep truck to take out on some of the hard to get to hiking trails in Colorado where he likes to go. If he leases, he will buy it outright at the end of lease as it will be less costly (depreciation) in the end.
Semiconductor prices are up the same as what was in 2009 and 2010. This is the second time manufacturers have used a market downturn to profit. They will blame “no-orders” to build against. It appears like automotive played dumb again and failed to maintain orders for semiconductors. By maintaining orders with their supply base (key-fobs, etc.) maintains semiconductor inventory for themselves.
Come 2022
McConnell has already said all of this will be a report card about Biden. What the hell, Repubs were instrumental in blocking aid in 2008 helping lead to a longer recession.
U.S. Economy Grows as Fourth-Quarter GDP Shows Strongest Year in Decades – WSJ
here’s more details on this week’s report, with several links omitted:
4th Quarter GDP Grew at 6.9% Rate on Inventories; 2021 GDP Grew 5.7% on Personal Consumption Growth
The Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 6.9% annual rate from the output of the 3rd quarter, when our real output grew at a 2.3% real rate, as inventory growth and increased personal services more than accounted for the quarter’s growth, more than offsetting decreases in both federal and state and local government spending, while export growth completely offset import growth…for the entire year, our economy grew at a 5.7% rate, more than reversing the 3.4% contraction of 2020, and far greater than the 2.3% growth rate of 2019….in current dollars, our fourth quarter GDP grew at a 14.33% annual rate, increasing from what would work out to be a $23,202.3 billion a year output rate in the 3rd quarter to a $23,992.4 annual rate in the 4th quarter, with the headline 6.9% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 6.9%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change….
As is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now……also note that December’s construction and factory inventory data were not yet reported at the time of this release, and that the BEA assumed a $1.1 billion increase in residential construction, a $1.5 billion decrease in nonresidential construction, a $0.3 billion increase in state and local government construction, and a $1.5 billion decrease in nondurable manufacturing inventories for December before they estimated the 4th quarter’s output (see the Key source data and assumptions(xls) for more details).
While we review the details for the 4th quarter below, remember that the news release for the Advance Estimate reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price indexes chained from 2012 prices, and then that all percentage changes in this report are calculated from those ‘2012 dollar’ figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts, since real GDP is not a monetary metric….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the advance estimate of 4th quarter GDP,which we find on the BEA’s GDP landing page, which also offer links to just the tables on Excel and other technical notes… specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2018, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters and years, table 3, which shows both the current dollar value and the inflation adjusted value in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components….
Our Personal consumption expenditures (PCE), which are used to compute nearly 70% of GDP, grew at a 9.94% rate in current dollars in the 4th quarter, which were then subsequently deflated to indicate a 3.3% real growth rate of goods and services consumed, after an annualized PCE price index increase averaging 6.5% was used to adjust that consumer spending for inflation….consumer outlays for durable goods grew at a 12.1% rate in current dollars, while prices for those durable goods averaged 10.3% higher, and thus the BEA found that the real growth rate in the output of consumer durables was at a 1.6% rate, as real growth at an 11.8% rate in consumption of recreational goods and vehicles was partly offset by lower consumption of motor vehicles, furniture and durable household equipment…the BEA also found that real output of consumer non-durable goods shrunk at a 0.1% rate, after increased consumer spending for non-durables at a 10.8% rate was adjusted for weighted non-durable goods prices that rose at an 11.0% rate, as decreases in real consumption of food, clothing and footwear more than offset slightly higher consumption of gasoline and other non-durable goods….meanwhile, a 9.2% nominal growth rate for consumer outlays for services was deflated by an average 4.3% increase in prices for personal services to show real output of consumer services grew at a 4.7% annual rate, as a 7.4% real growth rate for health care services accounted for more than 40% of 4th quarter’s services growth…as a result of those changes in growth from the 3rd to the 4th quarter, the change in real outlays for durable goods added 0.14 percentage points to the GDP growth rate, the decrease in non-durable goods subtracted 0.02 percentage points from GDP, while increased services added 2.12 percentage points to the growth rate of the economy in the 4th quarter..
The change in other components of the change in GDP is computed by the BEA in the same manner that we have just illustrated for computing real PCE; ie, the annualized increase (or decrease) in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the change in real units of goods or services produced during the quarter, at an annual rate….thus, real gross private domestic investment, which had grown at a real 12.4% annual rate in the 3rd quarter, grew at a real 32.0% annual rate from those levels in the 4th quarter, as the real growth rate of fixed investments grew at a 1.3% annual rate in the 4th quarter, after shrinking at a 0.9% rate in the 3rd quarter, while growth in inventories provided most of the 4th quarter’s investment boost…among fixed investments, real non-residential fixed investment grew at a 2.0% rate as real investment in non-residential structures shrunk at a 11.4% rate and subtracted 0.30 percentage points from 4th quarter GDP, real investment in equipment grew at a 0.8% rate and added 0.05 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 10.6% rate and added 0.53 percentage points to GDP….at the same time, real residential investment shrunk at a 0.8% rate and subtracted 0.03 percentage points from 4th quarter GDP….for an easy to read table as to what’s included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3…..
Meanwhile, real private inventories grew by an inflation adjusted $173.5 billion in the 4th quarter, after shrinking at an inflation adjusted $66.8 billion in the 3rd quarter, and as a result the $240.3 billion positive change in real inventory growth added 4.90 percentage points to the 4th quarter’s growth rate, after a $101.7 billion positive change in real inventory growth in the 3rd quarter had added 2.20 percentage points to that quarter’s GDP….however, since growth in inventories indicates that more of the goods produced during the quarter were left in storage or sitting on a shelf, the $240.3 billion increase in their growth in turn means real final sales of GDP were smaller by that amount, and hence real final sales of GDP only grew at a 1.9% rate in the 4th quarter, albeit higher than the real final sales growth rate of 0.1% in the 3rd quarter, when inventory growth had accounted for almost all of the quarter’s GDP growth…
Real exports and real imports both increased in the quarter, but their real dollar value increases nearly matched, hence leaving no impact on 4th quarter GDP….our real exports of goods and services grew at a 24.5% rate in the fourth quarter, after our exports had decreased at a 5.3% rate in the 3rd quarter, while our real imports, which are half again greater than exports, grew at a 17.7% rate in the fourth quarter, after growing at a 4.7% rate in the 3rd quarter….as you’ll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted elsewhere in this GDP calculation), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn’t have been because it was not produced in the US….thus the 4th quarter increase in real exports added 2.43 percentage points to 4th quarter GDP, while the increase in 4th quarter imports subtracted 2.43 percentage points from 4th quarter GDP, and hence our trade imbalance had no impact on 4th quarter GDP, after our worsening trade deficit had subtracted a rounded 1.26 percentage points from GDP in the third quarter…
Finally, real consumption and investment by all branches of government decreased at a 2.9% annual rate in the 4th quarter, after growing at a 0.9% rate in the 3rd quarter, as federal government consumption and investment shrunk at a 4.0% rate, while state and local consumption and investment shrunk at a 2.2% rate….inflation adjusted federal spending for defense shrunk at a 5.7% rate and subtracted 0.22 percentage points from 4th quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 1.6% rate and subtracted 0.04 percentage points from GDP….note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services….meanwhile, state and local government investment and consumption expenditures shrunk at a 2.2% annual rate and subtracted 0.24 percentage points from the growth of 4th quarter GDP, as a real decrease in state and local consumption expenditures subtracted 0.12 percentage points from GDP, while real state and local investment shrunk at a 6.2% annual rate and subtracted 0.12 more percentage points from GDP…
Stock market indices were at yearly highs late in the 4th quarter.
They started dropping in early January.
As of January 28,
the NASDAQ was at 13771, down 11.98% from 15645 at yearend;
the S&P was at 4432, down 7% from 4766 at yearend;
the Dow was at 34725, down 4.44% from 36338 at yearend.
Indeed, 2021 was a pretty good year on the stock market.
Much has been lost since 2022 started. The Dobbs Index
is not too far above what it was two years ago.
Gains in 2021 have been wiped out.
Gains over the last couple of trading days have been significant, but the Dobbs Index is still off a lot since the end of 2021. A long way to go to reach where it was at year end.
BTW, the gains of 2021 were not all wiped out. The Dobbs Index is back to where it was sometime in June of last year.
Stocks had a lousy start to the year, but Wall Street expects good times ahead
NY Times – Jan 31
It once was a rule of thumb on Wall Street that January set the tone for the year. By that measure, the forecast for stocks in 2022 would be downbeat, and subject to wild swings.
The S&P 500 index ended the month down 5.3 percent on Monday, its worst monthly performance since March 2020, which saw stomach-churning drops in the early days of the pandemic.
It would have been even worse if not for strong rallies on Friday and Monday that regained some of ground lost earlier in the month. The S&P 500 gained 1.9 percent on Monday, building on a 2.4 percent gain on Friday. This was in keeping with sharp moves — some up, but mostly down — in previous weeks as investors reassessed their assumptions about markets and the economy. …
Thanks Fred for your view . . .