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2009 GDP Declines 2.4%, Worst Year Since 1946
From The Daily Capitalist
It all depends on how you wish to spin the numbers.
Q4 2009 GDP increased 5.7% of which 3.4% was inventory reduction. Overall for 2009 GDP went down 2.4%. My guess is that the 5.7% number will be readjusted downward when the revised numbers come out in late March (26th).
What does this mean? Inventory reduction is a business cycle phenomenon. When consumer demand shrinks, retailers draw down their inventory of goods before they re-order. They've been doing this for six quarters, the longest streak since 1948. Now businesses find their inventories too low and re-order goods. This has happened for the last 2 quarters. It reflects the fact that businesses have become lean and more efficient which is not a bad thing.
But ... as David Rosenberg points out, it is usually accompanied by increases in consumer spending which is driven by wage and job growth:
Strip out inventories and the foreign trade sector, we see that domestic demand growth in the fourth quarter actually slowed to a paltry 1.7% annual rate from 2.3% in the third quarter. Some recovery. ...
In the fourth quarter, aggregate private hours worked contracted at a 0.5% annual rate and what we can tell you is that such a decline in labour input has never before, scanning over 50 years of data, coincided with a GDP headline this good. Normally, GDP growth is 1.7% when hours worked is this weak, and that is exactly the trend that was depicted this week in the release of the Chicago Fed’s National Activity Index, which was widely ignored. On the flip side, when we have in the past seen GDP growth come in at or near a 5.7% annual rate, what is typical is that hours worked grows at a 3.7% rate. No matter how you slice it, the GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.
David Wessel in the WSJ:
Wage and benefit costs, both before and after adjusting for inflation, grew more slowly in 2009 than in any year since the U.S. government began tracking data in 1982, as double-digit unemployment weakened workers' ability to command higher pay. ...
Adjusted for inflation, wages and benefits fell 1.3%, after rising 2.8% in 2008, the first year of the recession. The inflation-adjusted cost of wages and benefits at the end of 2009 stood just 1.1% higher than at the end of the previous recession in 2001, the Labor Department said.
Which gets us to tepid consumer spending:
Consumer spending grew at a 2% annual rate, the Commerce Department said. That was down from the third-quarter, when spending grew at a 2.8% rate, boosted by auto sales related to the government's cash-for-clunkers program. ...
And, " [h]ousehold purchases dropped 0.6 percent last year, the biggest decrease since 1974."
This is all consistent with the increase in the personal savings rate, as consumers tighten their belts, pay down debt, and save for retirement. "The personal saving rate -- saving as a percentage of disposable personal income -- was 4.6 percent in the fourth quarter, compared with 4.5 percent in the third."
I wish to remind you that not all is doomsday. As I've discussed before, economies heal themselves without government intervention. The above example of inventory re-supply is an example. What is harming the recovery are the government's attempts to thwart the liquidation of debt held by banks and other financial institutions. But things are not "robust" as they say and you should not put much hope in Q4 results. We have a long way to go.
You can see the Department of Commerce release here.
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The key is that <free> economies heal themselves
without government intervention.
When we've had a mixed <up> economy, either
government or freedom goes.
These are the times that try men's souls...
http://www.jubileeprosperity.com/
I will see the savings rate as maxed out a 4. something per quarter.
Suppose the people did increase spending 5%? Then they will have no savings right?
I drained my own savings to pay off debt the credit card kind.
Now that the money sucking credit card company is out of picture, we are adding to our savings much faster than before, something like double what we were putting away before.
Cash is King, Gloom and Doom Days are few, only hang in there to see the Sunshine.
Weapons, food, supplies and etc... all in place and improving due to rotation and what not.
I understand there is a major winter storm in DC right soon, If I was there, no need to mob stores for milk and bread to survive the storm. We stay home and chop firewood.
"As I've discussed before, economies heal themselves without government intervention. "
god bless you for being one of the fewest people on this website who understands that....anyone wanting to understand the great depressions 1.0 and 2.0 - about ready to go into 2.1 - should read murray rothbard on the great depression 1.0....
everything the collectivist government is doing today is EXACTLY what hoover-roosevelt did....the parallels are eery....
Amen, bro.
Hardly "much ado about nothing"...
Skewed numbers and spun data leads to bad decisions and false conclusions. As Dirtt says, "pretending that all is well" is lying, or borderline sinister. If this clearer picture induces "fear mongering", that is up to those who are content to keep their heads buried in the sand or who prefer to be misled to keep their comfort level intact.
And, I would hardly characterize this piece as "fear mongering", given the last paragraph.
+10
Fear mongering is pretending that all is well. That is sinister.
Much ado about nothing. More fear mongering from the Zero Hedgies.
To Anon: then go watch CNBC. You've come to the wrong channel for the type of "information" you obviously prefer.
I am starting to realize that ZHedgies only want to see gloom & doom. Go read my latest comment for a little more balanced commentary:
http://www.zerohedge.com/article/wither-deflation
If the recovery is stronger than anticipated, don't say nobody warned you.
Leo:
I appreciate the fact that we differ on economic perspective. You are Keynesian and I am free market/Austrian. I would like to think I call it as I see it. There is probably some fundamental behaviorist thing that is involved here and I think you are partially correct. I would accuse you of the same thing as to your world view. I guess it will come down to who is right in the long term. I do try to evaluate the positive economic data and resolve it within my view of economics. It's just that I see history repeating itself here and it makes me rather negative. Japan and all that. I will say that the economists/commentators on my side of the spectrum were pretty good at predicting the bust. When you say your analysis is "balanced" I'm not sure what that means. Are you saying that pragmatic "common sense" is what guides you? Or that my analysis is not balanced because I don't see your rosy future? I do have faith in the ability of the dynamic US economy to pull itself out of a bust. We have a very dynamic economy. The question is: will the current policies thwart that effort? As you say, stay tuned.
Thanks for the comment.
Actually, we prefer someone with a stronger grip
on reality.
Even the BLS can't add or make sense of
their own numbers.
BLS says in passing on their Q4 release real
GDP sank -2.4% in 2009 vs +0.4% in 2008.
And now it's +5.7%: Who hooo!
So why is the market going down?
Meanwhile, adding up BLS 2009 numbers with
bogus inventory seasonal adjustments
shows 2009 GDP +0.8%.
No one trusts government anymore except
the anchors and analysts whose jobs depend
on it.
Incidentally, even with the bogus 5.7% QIV,
the last 6 Qs are -7.3%. Without it, the last
five quarters are -13% GDP, a heck of a lot
more informative about what's going on in
the hood than Leo or BLS.
Incidentally, -10% defines Depression,
something anchors and analysts are sitting
on....
http://www.bea.gov/newsreleases/national/gdp/2010/pdf/gdp4q09_adv.pdf
I'm all for hearing good news, as long as it is not manufactured out of thin air. Believe me, if suddenly the economy kicks into high gear, I will be thrilled. ZHers simply don't drink the official brand of Kool-Aid, and the truth that seems to be so carefully hidden and/or ignored is not as rosy as some would like to hear. What's wrong with being worried about the path we're headed on? Are you of the view, for instance, that "deficits don't matter?" Are ZHers preachers of irrational, persistent "gloom and doom," or sanity? Only time will tell, my friend.
If you think a YoY GDP decline of 2.4% is "nothing", then put your money where your mouth is and start buying some stocks and real estate and go down with your ship...