The Financial Crisis
Robert Johnson: Well this is Bob Johnson, Associate Director of Economic Analysis at Morningstar. Today we had the GDP numbers, the broadest measure of how our economy is functioning or release for the fourth quarter. The number show that decline on an annualized rate of real GDP of 3.8%. Today, I have Bill Bergman from our financials team to discuss with us the GDP number. Bill welcome!
Bill Bergman: Hi Bob, nice to be here.
Robert Johnson: So, the number came in down 3.8, what was the consensus number out there Bill?
Bill Bergman: In consensus I guess the median expectation or average expectation of people that forecast these things is about 5.4 or a decline of 5.4%, 3.8 is the significantly better than that. So at least we came in better than the consensus expectation. On the other hand, the degree to which may have been better than the consensus, may have been in the inventory component which is the difficult number to forecast in and to estimate and the inventory number was increasing in contributed to the GDP in way that may not help us in the first quarter.
Robert Johnson: Okay, and Bill let’s talk about some the individual components in there and what struck you in the numbers of, maybe start out with the import and export number.
Bill Bergman: Well, the International Trade stuff was very important in the number, even they came in pretty much neutral. In our C+I+G+X format for GDP, the X numbers refers to net exports.
Robert Johnson: Right.
Bill Bergman: And so exports-imports the net difference between those two things is the thing that determines there contributions the GDP. But they both fell pretty dramatically in the fourth quarter which is not a sign of growth. International trade was something that had been –you know for instance in United States even as our recession was intensifying earlier this year. Manufacturing have been holding up better that what it normally does during a recession in part, because the contribution of industrial trade. That went away in the fourth quarter and I think you would see it in the industrial production numbers and the purchasing manager service that we have.
Robert Johnson: Okay, and then another one I know you love to watch is durable goods?
Bill Bergman: Yup.
Robert Johnson: What happen this quarter there?
Bill Bergman: Durables numbers in the first quarter for personal consumption expenditures, things like washing machine, appliances, cars stuff that last a long time.
Robert Johnson: Yeah.
Bill Bergman: That stuff was—well, they had decline 15% in an annualized rate, in the third quarter and the rate of decline and growth in that area accelerated in the fourth quarter to an annualized rate of 22% which is a bad number historically.
Robert Johnson: I'm wondering Bill is a lot of that cars-- I mean--you know everybody’s stop buying cars and it is pretty easy thing to stop immediately.
Bill Bergman: It’s an easy thing to stop immediately and so it easy thing to start up quickly too and historically that’s what happen. The cars go like this and boom! After a recession and it’s something that we may have some evidence that – inklings of evidence of things moving better in that score here, but--
Robert Johnson: Okay and then the last one fixed --residential fix home buying building.
Bill Bergman: Home building is --you know the housing start numbers we can---- we’re clearly forecasting a bad number there and we got one. And we’ve had bad numbers now for --we got 12 straight quarters of falling residential fix investment within GDP which is a bad result and one that hasn’t been exceeded historically for quite sometime.
Robert Johnson: The one thing I know the numbers are jump out me I want to get your feel for it, the consumer’s spending was down 3.8% the September quarter. It actually got a little bad; it was only down 3.5% of December quarter. What do you make at that?
Bill Bergman: Consumer sentiment is something that’s very important and we’ve had a number this morning that came out that’s—we've had two straight months of improving consumer sentiment after reaching 1980’s types of levels about three month ago. So, I think we’re-- you know those numbers, those consumer sentiment levels that I’m talking about, those are consistent but you're talking about in terms of a deceleration and the decline and spending, but we’re going to need more improvement to see better growth there.
Robert Johnson: Absolutely, and one of things that may help that along I think, one of things are really shock me in the set of numbers was the deflation adjustment that’s in the numbers this time, that it was actually something we had to back the numbers instead of usual subtract out, talk about that.
Bill Bergman: The chain way to price index declined for the first time since 1950. This is a--you know kind of a very historically significant development. Pessimist can point “deflation” is something to be concerned about. I don’t want to look a --in the mouth I think it’s a positive sign for our growth prospects.
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