Tuesday, November 12, 2013

Behind The 2.5% GDP Number.. Not So Fast

The initial read on Q3 GDP seemed pretty impressive at 2.5%.  That would indicate things are moving along and creeping up to the 3% "benchmark" everyone is waiting for.  However, like all things, there are the numbers then there are the numbers.

I had heard on NPR that the inventory numbers seemed elevated so I did some quick research and sure enough it appears that at least .5% of the GDP number was due to the growth in inventory. Of course, making things and throwing them in warehouses is not a driver of growth.  It is more like a ponzi scheme.

Forbes said the following:
"When you remove inventory accumulation and external trade, explains Capital Economics’ Chief US Economist Paul Ashworth, you get a slowing 1.7% growth rate of final sales to domestic purchasers. Ashworth calls this less impressive metric “a better gauge of underlying economic strength.”

What are the implications for shippers and transporters:

  1. The economy is not growing like the front page numbers may imply.  Things are sluggish for the most part with some strength industries - although those are not big freight industries.
  2. Due to the growth in inventory, there has been a "pre-positioning" that will have to bleed off.  This means, at some point, inbound freight will slow down dramatically waiting for the inventory to be sold. 
  3. Nothing indicates freight will speed up.  This slow freight environment which means demand is decreasing at least as fast as supply will be the "new normal" for at least one year. 
Everything I read and see says this slow "new normal" freight environment will go through 2014 at a minimum.  

Lesson:  Always read "behind" the numbers. 

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