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US Q4 GDP Confirms Consumption Collapse...

publication date: Feb 2, 2009
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The -3.8% GDP number reported Friday was slightly ahead of the -5.4% consensus but the discrepancy was entirely accounted for by inventory accumulation, which contributed +1.3% to the figure. Real final sales were down about 5.1% (close to the consensus expectation). Housing was worth a negative 0.85% in line with recent quarterly trends but the decline in broader consumption spending was a much bigger drag, and nonresidential fixed investment (notably spending on equipment and software) slumped. There was a collapse in both exports and imports, reflecting the slump in global trade evident from recent Asian trade statistics (eg Korean exports down almost 33% in January), although these netted out in the GDP calculation. In addition to inventories, there were two odd positive contributors to GDP growth; personal expenditures on gas/oil added +0.63% to GDP and personal expenditures on electricity/gas at home added +0.42% to GDP, for an additional 1.05% due to these unusually high (and likely to be revised?) contributions.
 
Overall, it's worth remembering that the American convention is to report GDP numbers as annual rates, so that the level of U.S. real GDP in the fourth quarter of 2008 was only 0.2% lower than it had been in the third quarter of 2007, just before the NBER declared the current recession began. Standing back from the detail, the most important trend for investors to focus on is one I've returned to repeatedly. After spiking to nearly 72% of GDP in the recent credit boom, US personal consumption is now collapsing (and with it durable goods demand) as private savings rise dramatically. This is shown in the charts below.


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