Doug Short | Jan 30, 2013 12:43PM ET
The chart below is my way to visualize real GDP change since 2007. I've used a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. The major changes that contributed to today's minus 0.1% Advance Estimate from the 3.1% Q3 were primarily seen in the general decline in private inventories, a sharp decline in exported goods, and a substantial drop in national defense spending.
My data source for this chart is the Excel file accompanying the BEA's latest graphs of personal income .
Let's close with a look at the inverse behavior of PCE and Gross Private Investment (GPDI) during recessions (note my use of different vertical scales to facilitate the overlay). PCE generally increases as a percent of GDP whereas Private Investment declines. That is not what we're seeing in the current data. I've plotted the two with different vertical axes (PCE on left, GPDI on the right) to highlight the frequent inverse correlation.
The recession crowd, with ECRI as their cheerleader, will no doubt view the Advance Q4 GDP estimate as a "see, I told you so" moment. But a few minutes studying the underlying components shows minimal evidence to support the recession forecast. Of course we have a couple more Q4 GDP revisions before we get the first look at Q1 2013 GDP, in late April. The key question is the impact of the expiration of the 2% FICA holiday on households, which could have a significant impact on the key component of GDP, Personal Consumption Expenditures.
I'll update these charts when the Q4 Second Estimate is released next month.
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