ECONOMIC GROWTH IN THE WRONG PLACES
***On the face of it, America's economy seems to be roaring back. Real GDP soared at an annual rate of 5.6% in the first quarter of 2002, leaving the rest of the world far behind. But digging beneath this miraculous headline figure, I discovered a lot of statistical trash.
First, one must always remember that these numbers are annualized. Second, the composition of this rebound makes for very poor reading. GDP in current dollars grew $165 billion, accruing mainly from two sources. The largest contributor was inventories, rising by $79.6 billion. The other major component was another jump in government spending, this time by $51.1 billion. Together, the two components accounted for 79% of reported real GDP growth.
However, there is a big snag in these inventory numbers. The usual story you will read is that economic growth picked up smartly because businesses moved to replenish their depleted inventories. They did nothing of the sort. Instead, they continued to reduce their inventories, but at a slower pace than in the previous quarter. In GDP arithmetic, this is treated as a diminished subtraction that adds to GDP growth.
Stripping out inventories and government spending, GDP rose $37.1 billion in the first quarter of 2002. The positive contributor was consumer spending on nondurable goods and services; the drags came from consumer spending on durables, business capital investment and net exports. This is definitely not the pattern of demand with which cyclical recoveries usually start.
In other words, the great furor that has been made of the stellar GDP growth rate of the first quarter is grossly misplaced. It has only served to divert attention from the U.S. economy's key problem: the most miserable profit performance since the 1930s.***
Respected International Banker, Economist and Author
Dr. Kurt Richebächer's articles appear regularly in The Wall Street Journal, Barron's, the US edition of The Fleet Street Letter and other respected financial publications. France's Le Figaro magazine did a feature story on him as 'the man who predicted the Asian crisis.' Dr. Richebächer is currently warning readers to be cautious in the face of The Crisis Almost No One Sees Coming.***
- Dr. Kurt Richebächer |
