4Q GDP

I would like to talk about the 4Q GDP statistics for a second. First off, if you don't know, 4Q GDP ran at 2.5% growth, which was up from the third quarter growth of 3Q at 2.2%.

On a quick side note, those are measly numbers any way you look at them. Remember Japan is growing at 5.5%, India at 8.2%, and China at10.7%.

Anyways the 2.5% was much higher than I expected. I figured this was due in part to manufactures increasing their inventories, and the U.S. Factory Index told us just that. The index, which is made up from the numbers given by 400 manufactures on employment, production, new orders, supply deliveries, and inventories, was below the forecast 51.5.

The producers of this survey said that the increase in March was due, almost completely to increased inventory levels. That is also what happened to contribute to the GDP growth.

This means that the investment spending of these manufactures will decline sharply in the 1Q of this year. They will have to unload these inventories, and cut down on production. When GDP from a previous quarter is increased because inventories are increased, means that the coming quarter of GDP growth related to manufacturing will decline.

The other side of this story is that the index of prices paid by these manufactures jumped to a whopping 65.5. That is the highest its been since August when it was just 59. This is most definitely a leading indicator of inflation to come. Don't think for a second that they aren't going to push the increased cost of production onto the consumer in the form of higher prices of the good it is selling.