The Channel-Stuffed GDP Report

I don’t think there was much in the GDP report that wasn’t expected, except durable goods.  The decline in durable goods was comparable to Q2 2011, right down to the primary driver of that weakness – motor vehicles.  However, there was no earthquake in Japan this year to disrupt supply chains, production schedules and brand availability.  Just like last year, marginal economic growth overall seems to be backfilled with a tide of inventory.  The trouble with inventory at the margins of growth is that it is essentially a build-up of forward demand, and therefore susceptible to reversal should overdone production move out of alignment with final demand.  Both monetary and fiscal policies actively seek to pull forward demand, meaning this inventory-driven activity conforms to policy goals.  This is true in perhaps more ways than expected since the heavy arm of fiscal activism is readily apparent in an important sector of the marginal manufacturing economy.

That brings up a bit of a curiosity since durable goods “sales” of motor vehicles should be largely in sync with durable goods “output” of motor vehicles:

“Sales of MV”, contributions to GDP past 5 quarters       -.53  .05  .63  .31 -.29

“Output of MV”, contributions to GDP past 5 quarters      .05  .03  .55  .72  .13

That’s a pretty big deviation in the past two quarters.  The “sales” figures include the sales of motor vehicle parts, while the output figures do not, but I highly doubt the marginal difference is solely a collapse in parts purchases.  It might be a statistical anomaly that gets revised away but it might also explain some of the recent weakness of the regional Fed surveys and the ISM manufacturing survey.


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