Goldman Cuts Q4 GDP Forecast To 1.5% From 2.0% On Q3 Inventory Buildup

Tyler Durden's picture

What inventory boosts give in the current quarter, inventory lack of boosts take from future quarters. At least that is what Goldman's Jan Hatzius just stated in his note summarizing not only the just released Q3 GDP, but his first Q4 tracking forecast, which he cut from 2.0% to 1.5%.

To wit:

BOTTOM LINE: GDP grew more quickly than expected in Q3, but the surprise came mainly from a larger-than-expected inventory contribution and a smaller-than-expected decline in government spending. Consumer spending and business fixed investment were less strong. Initial jobless claims declined as expected with no special distortions noted by the Labor Department. We started our Q4 GDP tracking estimate at 1.5%.

  • GDP grew at a faster-than-expected 2.8% rate in Q3 (vs. consensus +2.0%). Personal consumption expenditures?the largest component of GDP?rose a modest 1.5% (vs consensus +1.6%), with strong growth in goods consumption offset by meager growth in services consumption. Business fixed investment increased at a disappointing 1.6% rate, with a 3.7% decline in equipment investment. Offsetting slightly disappointing PCE growth and sluggish business fixed investment, inventory accumulation contributed eight-tenths to headline growth, while federal government spending posted a smaller-than-expected 1.7% decline. (Federal spending has tended to show some degree of residual seasonality in recent years, with stronger growth in Q2 and Q3, and weaker growth in Q1 and Q4.) In addition, residential investment - which reflects new construction with a lag - rose a solid 14.6%. Stripping out the contribution from inventory investment, real final sales increased at a moderate 2.0% pace.
  • In light of the composition of Q3 growth?driven by a substantial boost from inventories and a smaller-than-expected decline in government spending, we started our Q4 tracking at 1.5%, five-tenths below our prior assumption of 2.0%. Inventory investment tends to subtract from growth following quarters showing a positive contribution, while we expect the smaller-than-expected decline in Q3 government spending to result in even weaker Q4 spending than we had anticipated.

Which is great news for stocks: even more economic deterioration means even more BTFATH.

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Grande Tetons's picture

Indeed, Pink Slips galore which should crimp consumer spending....just a wee bit. 


On the upside people will have more time to tweet. 

Headbanger's picture

It's worse than that.  GDP is really going negative and GS is just sugar coating it.

FreedomGuy's picture

My economics problem is that government spending is considered GDP and "good". With our current GDP formula the government could take over the entire economy Soviet style and GDP would be unaffected. I suggest government spending is about an 80% net loss as the entire government represents a simple administrative burden and a barrier to doing most anything.

Put another way. Imagine if there were NO government and the private sector had the extra $4trillion to save, spend or invest. On the flip side, imagine if the government seized the other two thirds of the economy saying it could do better and now Congressman and bureaucrats were in charge of all productive capacity.

I see a $20trillion deficit on the horizon.

alien-IQ's picture

Well if that doesn't push the DOW over 20K I don't know what will.

Bad news = Bullish
Horrible news = Fantasmagoric
Good news = market collapse.

Ain't "capitalism" grand?

yogibear's picture

Not capitalism, it's the central planner's QE comrade.

FreedomGuy's picture

I would laugh and enjoy your post, Alien but what you say has proved true the last few years. The world is upside down economically.

And it ain't capitalism.

LawsofPhysics's picture

I am confused, I thought channel stuffing was bullish?

Kina's picture

Make it and it will be bought....more inventory, just stack it, make more, just means more sales guaranteed.

yogibear's picture

So the real GDP decreased by $58.4 billion?

$255 billion by the Fed injected - $196.6 billion =  -$58.4 billion because it's all supplied by the Feds printed money.

the grateful unemployed's picture

the QE money is buying stocks, the companys that belong to those stocks are actually cutting back, and this channel stuffing headling will cause even more cutbacks, more easy money, more financially engineered profits, and more GDP, so the outcome does match the model, unless of course there are limits to these things

Dr. Engali's picture

Translation....print moar.

The Devil's picture

Leave my feinds alone!

Goldman Sachs Under Investigation in Currency Probe

Dr. Engali's picture

Markets can't be manipulated. The CFTC assured us about that when they investigated silver.

SheepDog-One's picture

They used to call this 'stuffing the channels', and it used to be highly illegal. Now it's the main component of GDP.

the grateful unemployed's picture

these budget skirmishes take a toll, first the sequester, then the recent government shut down, temporary, sure, but they have a lasting effect. and isn't a smaller-than-expected decline, an increase? and even with their increaseed spending the us government economy is losing steam

Hagen's picture

You are ridiculous. To announce always the worst and to plan every day the collapse of the system you lost any credibility.

the grateful unemployed's picture

i dont think bernanke is doing the correct thing, if this problem is similar to the 30's, as he warns, while he keeps rates uber-low. in the 30s there was under capacity, there were shortages, no money to buy things, and nothing to buy. now we have global over capacity. the worlds manufacturing economies could shut down for a week and no one would notice. bernanke only has this half figured out.