Saturday, January 28, 2012

GDP Report Offers Investors Clear Warning

The government reported Friday that fourth quarter GDP grew 2.8%, which was well above the third quarter growth rate of 1.8%.

The two most significant issues detracting from the best quarterly GDP growth since Q2 2010 both tie into consumer spending. First, and most importantly, GDP was lifted 1.94 percentage points by a build in inventories. Some are saying that this is okay, since third quarter growth was penalized by 1.35 percentage points due to an inventory draw down, however, I see no relevance. Despite the promotional environment of the fourth quarter, the aggregate performance of retailers was poor. 

The other point that I see as significant came from the growth of the services sector in Q4, which only managed 0.2%, according to the government. Our services dominant economy cannot sustain significant economic growth without robust activity in services.

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