Paul Krugman Likes McCain Fiscal Policy Even Less than I Do
Tomato Escalation

Final Sales vs. Production

The wedge between production and final sales is unanticipated inventory accumulation--things that are made that firms cannot sell. The NIPA conventions is that a recession is a fall in production, not a fall in demand. But this is an arbitrary choice of convention:

About that GDP report: I’ve had time to look at it a bit more closely — and it’s much weaker than the headline number suggests (and MUCH weaker than the previous quarter, even though the growth rate was the same.) It’s not just that final sales fell, so that the economy grew only because of inventory accumulation. If you look at consumer spending, purchases of goods actually fell substantially. Only service purchases rose — and much of that was housing and medical care. As Michael Mandel at Business Week has pointed out, those aren’t “really” consumer decisions: housing “consumption” is largely imputed rents on owner-occupied homes, and medical care is mostly paid for by insurance.

So this really does look like an economy at stall speed, not an economy skirting past the edge of recession (whatever recession means).