February 25, 2011

Still optimism to be found in the Fourth Quarter GDP number

Bruce Yandle

Distinguished Adjunct Fellow

Today’s revision of the fourth quarter economic growth does show a decrease from the original estimate, but once you dig into the information, there are some positive signs for the future.

The downturn revision was generated by a decline in an inventory across the economy.  This number tells us that consumers are optimistic, perhaps more optimistic than the storekeepers expected.”

The optimism held by consumers bodes well for future economic growth.

A storekeeper is trying to guess what sales will be when he orders inventory.  If more consumers buy inventory than anticipated, then the inventory will decrease, leading the storekeeper to order more inventory for the next quarter.