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GDP – not so hot

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10/29/2010

Quarterly GDP increased by 2% at an annual rate which means it increased by ½ of 1% for the quarter. Almost ¾ of that growth was the result of building inventories so we are left with about 1/2 % at an annual rate or .14% for the quarter. If the buildup in inventories represents correct entrepreneurial insight regarding better business in the future, it is a good thing. If the insight of entrepreneurs is incorrect, or if inventories are rising on fear of higher inflation and a falling dollar then it suggests further weakening in the economy. One bright spot is that equipment and software was up by 12%, although such spending was higher and rising over the previous three quarters. You also must remember that this GDP figure will be revised twice in the future and that statistics released just prior to an election are particularly suspect. Anyone know of research on this last point?

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