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Strategies & Market Trends : Maximum Investing
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To: Robert Scott who started this subject6/1/2002 5:30:30 PM
From: Steve Lee  Read Replies (1) of 81
 
"The real change in private inventories added 3.47% of this increase. At the same time, those inventories decreased by $25.7 billion. Perhaps someone can help me understand why this percentage growth is attributed to a change in inventories when they actually fell. "

Explanation:

Inventories were written down faster than they were replenished. In other words, the GDP increase was down to channel stuffing rather than end user buying.

The increase in PCE might seem to contradict the above. However, that is possibly accounted for by the use of "chained dollars", where the amount a product adds to GDP does not depend on its dollar price, or even its inflation adjusted dollar price, but its price multiplied by a "productivity" factor compared to 1996 values.

For instance, certain govt statisticians believe that a $200 2GHz Pentium 4 is twice as valuable as a $200 1GHz Pentium 3 because it is twice as "fast".
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