The most important number in today’s GDP revisions for Q4 was $16.20 trillion. That’s the annualized constant dollar (2009 $) value of final sales during the quarter and, naturally, it was not mentioned in any of the media reports. But its important because the final sales figures strains out the noise of quarterly inventory fluctuations, and thereby provides a reasonable benchmark for where the overall economy currently stands.
In that context, the second most important number was $14.97 trillion—the real final sales number recorded for Q4 2007 on the eve of the Great Recession. As a matter of calculation, the rate of change between those two points over the last seven years is 1.1% per annum, and it embodies the tale of how main street is lagging while Wall Street is booming.
The starting point for appreciating that proposition, therefore, is to recognize that there is no point whatsoever in comparing the Q4 figure with the prior quarter—–or even with the cumulative gain since the bottom of the recession back in June 2009. Those kinds of comparisons are the gist of the Keynesian narrative that both Wall Street and Washington assiduously peddle—-but they are designed to rationalize the status quo, not to elucidate the real condition of our national economy.
As to the standard quarter/quarter comparisons, they are just plain irrelevant and more often than not misleading. The quarterly GDP data is seasonal maladjusted, full of short-term quirks and subject to so-called benchmark revisions in the future that can wash out today’s apparent Q/Q incremental changes entirely.
For instance, the national defense spending component of GDP dropped at a 12.8% annual rate in Q4, but not because Washington has gotten around to reining in the military-industrial complex. Actually, it reflected more nearly the opposite impulse—–a timing correction for an equal and opposite surge in Q3. During that period, national defense spending was up at a 15% annual rate, reflecting the fiscal year end scramble in the last days of September to spend the Pentagon’s available dollars.
In fact, on an apple-to-apples basis defense spending went nowhere over the course of the full year. At an annual rate of $699 billion in Q4, defense spending compared to $701 billion in Q4 2013, thereby neither adding to or subtracting from GDP over the past year. The quarterly numbers were just noise.
Nor is this example an outlier. On a year over year basis, the massive $1.87 trillion health care component of GDP grew at a 3.7% annual rate—undoubtedly reflecting the fact that Obamacare is adding smartly to reported GDP, even if its not adding to the efficiency and productivity of the nation’s already bloated medical care system. Yet within the course of 2014, the health care component dropped at a 1% rate in Q1 and then surged at a 7.6% annual rate in Q4.
