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4th-Quarter GDP Will Be Extremely Distorted Due to Monstrous Inventory Build

Warning! Ignore the headline 4th-quarter GDP number and look at the fine print.
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GDPNow forecast by the Atlanta Fed, Chart by Mish

GDPNow forecast by the Atlanta Fed, Chart by Mish

The Bureau of Economic Analysis (BEA) releases its preliminary GDP  forecast for the fourth quarter on January 27. 

Expect the details to be much weaker than the headline number. This Tweet from Liz Ann Sonders explains.

Massive Upswing in Inventories

"Massive upswing in retail inventories in December, +4.4% vs. +1.5% est. & +2% in prior month … monthly gain is by far largest on record"

Companies, fearing still more supply chain disruptions, are ordering massive amounts of components. 

It's highly doubtful customers make the implied purchases.

Atlanta Fed GDPNow 

The Atlanta Fed breaks its GDP forecast into pieces. Here's its latest GDPNow Forecast 

Latest estimate: 6.5 percent — January 26, 2022

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 6.5 percent on January 26, up from 5.1 percent on January 19.

That 6.5 percent figure looks huge. But its a mirage. 

4.6 percentage points of that 6.5 point forecast is due to an inventory build. But inventories net to zero over time.

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The Atlanta Fed GDPNow "Real Final Sales" number is what to watch. That at 1.9 percent. 

We do not have the actual numbers yet but we can be reasonably certain the headline numbers will look much stronger than they really are.

Retail Sales Unexpectedly Flop in December, Down 1.9 Percent

On January 14, I noted Retail Sales Unexpectedly Flop in December, Down 1.9 Percent

Holiday shopping was a big flop in 2021, even nonstore retailers down a whopping 8.7%.

Unexpected Flop

The Bloomberg Econoday consensus was for December retail sales to be flat from November, in a range of -0.6% to +0.7%.

Economists missed the mark by a mile as the Census Data shows sales fell 1.9%.

Adding insult to injury, the Census Department revised November to the downside.

Businesses are stocking up but consumers are failed to show up and inflation is raging. Gee, what can possibly go wrong with this scenario?

This post originally appeared at MishTalk.Com

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