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Mix-Ansicht- If you die by inventories, ou might live by inventories. - Cosa, 02.05.2002, 13:45
If you die by inventories, ou might live by inventories.
<font size="4">If you die by inventories, ou might live by inventories.</font>
By Paul Kasriel from Northern Trust
The GDP data the BEA gave us on Friday is mostly fiction. Some of the GDP components are estimated by the BEA and most of the others will be revised many times over. If you want to know what is going on in the economy, pay attention to today's ISM manufacturing report. Now, if the talking heads who are poormouthing the US economy after Friday's GDP release were doing so because of the fictional nature of the data, that would be one thing. But they have not questioned the quality of the data. Rather their bad-mouthing has to do with their incorrect interpretation of the data.
Let's start with inventories. If there ever was a classic inventories-correction recession, the last one was it. Chart 1 shows that we experienced a postwar record inventory contraction in this last recession. The chart also shows that final sales - total final sales, not just final sales to domestic purchasers - held up better in this past recession than they did in any previous postwar recession. Now, if inventory contraction was the major factor associated with this past recession, would it not stand to reason that GDP growth would get a big boost from inventories in the early stages of this recovery? Chart 2 shows that GDP in the early stages of almost every postwar recovery gets a big boost from inventories - regardless of whether the preceding recession was dominated by inventory contraction. So, what's all the yapping about this recovery being short-lived because first quarter GDP growth was dominated by a positive inventories contribution? Moreover, because Keynsians dominate the talking heads, haven't they ever heard of a multiplier? Isn't the factory workweek increasing to keep inventories from falling as much as they have in recent quarters? Don't these assembly-line workers get paid more for their extra hours of work? Might not these guys and gals start to buy a bit more from Wal-Mart with their heavier paychecks? Wouldn't these sales be considered final sales? Wouldn't these final sales perhaps lead to even more production? Isn't this the classic dynamic of an economic recovery?
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Now to the other bad-mouth topic - the lack of capital spending. For starters, ex-transportation, even nominal business equipment spending increased sequentially in the first quarter. A nominal increase, mind you, even with computer prices still falling. This is shown in Chart 3. September 11 did in transportation. Aircraft orders were cancelled and Hertz didn't need as many cars because fewer people were flying in fewer airplanes. So, all things considered, the first spring robin of capital spending was spotted last winter.
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Regional Survey Shows Factory Sector Growing at a Slower Pace
The Chicago Purchasing Managers' Index fell one point to 54.7 during April, denoting slower growth of the factory sector. Among the components of the index, the production index slipped to 55.8 from 57.2, while the new orders fell to 59.0 from 62.6. The order backlog index rose to 53.9 from 52.8, the prices paid index advanced to 55.4 from 51.2, and the supplier deliveries index climbed to 51.8 from 51.2 -- these three components that posted a gain in April. Inventories and employment indexes dropped in April.
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