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GDP Report Less Positive Than Headline Number

  • Written by Syndicated Publisher No Comments Comments
    December 6, 2013

    This morning’s report revising 3rd quarter GDP growth up to a 3.6% annualized rate from the previous report of 2.8%, appeared to be a huge positive surprise. It was much better than the consensus forecast for 3.0%, and a significant improvement from the 2.5% rate in the 2nd quarter.

    HOWEVER, that’s the headline number.

    All of the increase was due to businesses building up their unsold inventories, which grew by $116.5 billion. That’s the biggest increase since 1998,

    As a result, inventory growth accounted for a huge 1.68 percentage points of the 3.6% reported growth. The consensus forecast was that inventory growth would account for only 0.8 percentage points.

    Comparing apples to apples, stripping out inventory growth, GDP grew 1.9% in the 3rd quarter compared to 2.0% in the 2nd quarter with inventory growth in that quarter also stripped out.

    With slowing economic demand (the report included that consumer spending was slower in the 3rd quarter than the 2nd quarter), the huge jump in inventories will probably reverse and be a drag on GDP growth in the 4th quarter. (Forecasts for 4th quarter GDP growth are already pessimistic due to expectations that the government shutdown impacted growth by .5%).

    Negative divergence between Asian and U.S. market continues.

    The U.S. market stumbled in May but recovered and went on to new highs.

    Although at successive new highs the Dow is only 3.2% above its May peak.

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    But the red-hot Nasdaq has surged up 15% since its May peak.

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    It does have the U.S. market in a significant divergence with global markets, which on average were not able to even recover to their May peaks let alone move on to new highs.

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    One does have to wonder how much longer the divergence can last and how it will be resolved, with global markets reversing sharply to the upside and catching up, or the U.S. market plunging and catching down. Over the long-term global markets do tend to move in tandem.

    Here’s a look at the divergence between the Nasdaq and the DJ Asia-Pacific Index.

     

    If you’d like to hear my recent interview by Steve Halpern on the Moneyshow, click here;

    http://www.moneyshow.com/investing/article/44/DailyGuru-33227/Seasons-Sentiment-and-Election-Cycles/

    To read my weekend newspaper column click here: Market Seasonality and the Fed Are a Powerful Combination

    Subscribers to Street Smart Report: The new issue of the newsletter is in your secure areaof Street Smart Report.com  There is also a ‘Gold, Bonds, Dollar, Inflation/Deflation’ report from Monday.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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