Saturday, January 30, 2010

There's Inventory Growth, and Then There's Economic Growth

I remember Dean Baker or Paul Krugman or somebody talking about how it's important not to be fooled by growth in inventories, which Calculated Risk (CR) mentions also in this helpful post about the recent report that Gross Domestic Product (GDP) zoomed ahead at a 5.6% annualized rate in the fourth quarter of 2009.

That 5.6% growth rate for Q4 did sound faintly ludicrous to me...and CR points out that without what he calls this "transitory" increase in inventories, Q4 annualized growth would have only been 2.3%.

It's nice that businesses feel confident enough to fill up their warehouses again, but it's important to remember they haven't actually sold any of that stuff yet. As CR points out, if personal consumption expenditures don't pick up soon, they won't be selling any of that stuff anytime later, either.

We need a second stimulus, preferably one focused on making our houses and buildings more energy-efficient.

Thanks to Karlissimo del Banco for the pointer.

Image by Matt Wright via a Creative Commons license.

No comments:

Post a Comment

HTML Tag Instructions

Bold: To make text bold, tag it as follows:

<b>text you want to appear in bold</b>

Italic: To italicize text, tag it as follows:

<i>text you want to appear in italic</i>

Links: To add clickable links, like say to a Wikipedia article on baseball, tag it as follows:

<a href="">text you want to link from</a>

Related Posts with Thumbnails