Friday’s GDP number was, for lack of a better term, fabricated by statistical gaming.
1. Ridiculously low deflator of .26%. Contrast this with a Q3 deflator of 2.03%. Additionally, 4th quarter CPI was +2.57% after 1.47% in Q3, showing an increase in inflationary pressure quarter over quarter. So, despite the government’s own reporting (and common sense) showing increasing inflationary trends, they reduce the inflationary discount to GDP by 87%? If the inflation estimate was held steady from Q3 (one could argue it should have increased), GDP would have reported at 1.2%.
2. Residential investment reported at 3.4% increase despite a 30% annualized contraction in housing starts (-8% q on q)
3. Trade deficit add of +3.44% is despite Oct. and Nov. numbers running at +1.3%. (December is "estimated" in this early release and, to get to +3.44% for the quarter requires real outlier trade assumptions for December). If we assume +1.3% for the quarter, this removes 2.14% of growth.
With inflation assumptions at Q3 levels and extrapolating Oct./Nov. trade deficit numbers to full Q4, GDP would have been negative in Q4 2010:
-2.14% excess trade deficit assumption