Summary and Commentary
Well, the 5% growth was nice while it lasted. And now we know why the Fed is disinclined to remove stimulus by “normalizing” interest rates.
Among our take-aways from this report are:
— For once, and at face value, the +1.82% “bottom line” Real Final Sales growth rate (corrected for inventory changes) seems both plausible and feels about right for this economy.
— Looking back, this reports tells us that the 5% growth in the third quarter probably had more than its share of smoke and mirrors — including the gratuitous Federal fiscal year end shenanigans, the political gift that keeps on giving.
— And we hate to get technical, but we are truly troubled by consistency and transparency issues raised by this report. We have been critical of the BEA’s deflators many times before, suspecting that under reported inflation was artificially boosting the headline numbers. Now that the situation has completely reversed (with the BEA under reporting price DIS-inflation), we are even more troubled by an inability to derive meaningful or plausible alternate growth rates via BLS provided deflators. We understand that the BEA and BLS price tracking methodologies are vastly different, and comparing their deflators has serious “apples and oranges” issues. Nevertheless, however correct and consistent the BEA’s -0.09% quarterly deflator is from their methodology standpoint, it is patently absurd from a real-world perspective. Unfortunately, that absurd deflator generates a reasonable growth number when applied against the BEA’s nominal data. The mathematical implication is that the nominal data is just as absurd as the -0.09% deflator.
