Don't Be Fooled by the US GDP Report

While it seems like US GDP is on a rollercoaster, the underlying strength in the economy is pretty clear if you look carefully enough

Robert Johnson, CFA 4 February, 2013 | 1:55PM
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As I warned in my last column, there was indeed economic news for both the bulls and the bears to feast on this past week. On the surface, the negative US GDP growth report was a disaster. The GDP growth rate shocked everyone with a 0.1% decline--although closer examination suggests that government bill payers and overly cautious businesses were largely to blame for an otherwise excellent report.

In housing news, falling pending home sales and increasing Case-Shiller Price Index readings were part and parcel of the same issue: not enough inventory of American homes, new or used. In fact, the new biggest threat to my economic forecast is that there aren't enough land, materials, or labour to truly step up housing starts.

While the January US employment report was satisfactory and proved that no one panicked in the first month, the real news was a massive adjustment to the employment database, suggesting that we added hundreds of thousands more jobs to our economy over the last two years than was previously thought. Still, we have recovered just 5.5 million of the 8.7 million jobs lost during the recession and are only adding jobs at a 2.1 million annual pace. Though manufacturing isn't generally important enough to move the economic needle, news this week was surprisingly and uniformly positive. Excellent auto sales for January should also prove to be encouraging news for the economy and the manufacturing sector.

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Robert Johnson, CFA  is director of economic analysis with Morningstar.