GDP Analysis from the Squid itself

Goldman Sachs at 200 West St. in NY City is chiming in on the GDP release.

-GDP worse then their forecasts, there was more inventory growth, less consumer spending, less business investment.

-The composition of growth was slightly negative for Q1 (2012) outlook

- Growth in domestic final sales--GDP less inventories and net trade--was just +0.9%, in contrast to our expectations for +2.0%.


-The weakness reflected: (1) slightly weaker than expected consumer spending of +2.0%; (2) weaker than expected business fixed investment, reflecting a 7.2% decline in structures investment; and (3) a 12.5% contraction in federal government spending on national defense. National defense spending tends to be volatile, and we would therefore discount this component as a signal about the near-term growth outlook.The misses on consumer spending and business investment are arguably more meaningful.


- Inventories increased by $56bn during the quarter, adding 1.9 percentage points (pp) to GDP growth--much more than we had expected. In contrast, net exports actually subtracted 0.1pp from growth. We had forecast a positive contribution from net trade of +0.5pp. GDP excluding motor vehicles increased by 2.5%, implying that the rebound in the auto sector added 0.3pp to growth.


- The GDP price index increased by just 0.4% (annualized) in Q4, far below consensus expectations for a 1.9% increase. Nominal GDP growth was therefore quite soft at just +3.2%.


Translation, the US was supposed to have a golden quarter which backed the hype from Jamie Dimon of JPM that events in the EU won't have much of an effect on the US as the US economy has decoupled with the world (presumably because GDP was supposed to reflect robust growth as proof). 


Reality: The US is more likely then not simply lagging events in Europe, however when the real dominoes start to fall, Dimon's theory will really be put to the test (remember he's presumably in well with one Bernakacide and towing the party line). However, if the US housing debacle sent a shock through the world economy through a vast global financial spider-web that eventually provoked the EU crisis, what would happen when a continent starts to fail and the shock wave travel back in the opposite direction through that same global financial spider web?


The US has been caught flat-footed more then once for a failure of imagination. I will point out that the Great Depression in the US was 70 years before globalization and we haven't really had a test of the system to understand exactly where the weak points are in a new globalized era.