Paper Economy: Fueling the Fire

Wednesday, February 28, 2007

Fueling the Fire

Today, the Bureau of Economic Analysis (BEA) released their second installment of the Q4 2006 GDP report showing a series of significant downward revisions to the preliminary estimates released last month.

Remember that last months preliminary report showed GDP growing at an annualized rate of 3.5% giving many Wall Street bulls optimism that the 2.0% growth seen in Q3 2006 could have represented a temporary anomaly.

But today’s release revises down the preliminary estimate 1.3% to an annualized rate of 2.2% with significant revisions to, amongst other things, non-durable goods and net imports (as I had suggested last month might occur) as well as durable goods.

Additionally, residential investment is showing a continued and dramatic fall-off registering a decline of 19.1% shaving 1.16% from overall GDP.

Furthermore, the decline to non-residential investment that first showed up in last months report as a meager 0.4% was today revised to a far more substantial decline of 2.4%.

Taken together, the declines to both residential and non-residential fixed investment are now depressing GDP by a stunning 1.43%.

As with last months estimate, today’s release is still showing unusually large increases to non-durable goods, net exports of services, and defense spending as well as an unusually large decrease to net imports, all working to boost overall GDP figure.

Be on the lookout for these values to be revised in next months final Q4 2006 GDP report possibly depressing GDP further still.

The following chart shows real residential fixed investment and nonresidential fixed investment versus overall GDP since Q1 2003 (click for larger version).