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Kathleen Madigan: The Gap Between Fourth Quarter GDP and Final Sales Growth

Real Time Economics  WSJ

Kathleen Madigan:

Real Time Economics: Real GDP grew at a solid 2.8% annual rate in the fourth quarter…. [But] the bulk of GDP growth came from the inventory sector, which accounted for almost two percentage points of the top-line expansion…. The problem with inventory growth powering GDP is the uncertainty over what motivated the buildup.

If businesses stored more supplies and finished goods in their warehouses because they see future demand growing at a solid pace, then the stockpiling can be viewed as a positive sign of business confidence and for growth going forward.

If, however, businesses stockpiled in anticipation of more demand than materialized, then they ended the fourth quarter with a load of unwanted goods. If so, the buildup is a negative for the outlook because businesses will have to draw down their existing stockpiles first before ordering more supplies and merchandise.