Courtesy of Karl Denninger at Market Ticker:

4th Quarter GDP is out with a stunning 5.7% (annualized) rate of increase.  Let’s look inside and see if the numbers make sense.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE).

The first two are not a big surprise.  The latter, however, is dangerous to rely on.

As I have repeatedly pointed out we have over the last 18 months added about $500 billion (annually) in transfer payments to the federal budget.  This counts in the GDP report as PCE, but is not actual output any more than I am richer if I go to the bank and borrow $20,000 on my credit card.

If one was doing GDP as a “balance sheet” you’d have to subtract the addition in liabilities (debt) from the money spent, but of course GDP isn’t computed that way.  This results in a nutty overstatement of GDP when it is used as a measurement of economic health, which of course is how all the so-called “economists” use it.

Indeed, that $500 billion is an annualized distortion of a whopping 3.57% of the entire economy!

There are some problems in this report as well.  The claim is made that real federal government expenditures and investment was flat (0.1% increase) .vs. an 8% annualized rate of change in the last quarter.  I’m not sure I believe that either – but it may in fact be true, in that the aforementioned $500 billion diversion could reasonably be “all there is” in terms of what the government can and does spend.  I’m particularly skeptical of this number after seeing the durables report and change in defense spending – those two numbers don’t add correctly, and defense spending has been up strong all year (much to the chagrin of those who thought Obama would be drawing down our military spending and bringing the troops home!)  State expenditures are down as expected (the states are broke!) but despite all the bleating about lack of money the change is small.  You’d think there would be real cutting going on given the screams of distress – nope!

Export growth continued as did imports, but the import growth rate slowed dramatically from the third quarter.  The latter mostly appears to account for inventory additions,which was 3.39% of the GDP increase – about what I expected.  While this is additive to GDP it is not indicative by…
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