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FreeMarkets (97.24)

Explanations Please

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January 29, 2010 – Comments (10)

The U.S. economy surged at the end of 2009, a bigger-than-expected gain driven more by slower inventory liquidation than by consumer spending.

 

 My question is what does "driven more by slower inventory liquidation than by consumer spending"?

10 Comments – Post Your Own

#1) On January 29, 2010 at 9:08 AM, lemoneater (85.01) wrote:

??? Good question.

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#2) On January 29, 2010 at 9:10 AM, FreeMarkets (97.24) wrote:

Here's the link to the WSJ article: WSJ Article

 

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#3) On January 29, 2010 at 9:14 AM, JibJabs (93.85) wrote:

I have no idea but that is typical. Did that answer your question?

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#4) On January 29, 2010 at 9:14 AM, JibJabs (93.85) wrote:

I have no idea but that is typical. Did that answer your question?

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#5) On January 29, 2010 at 9:21 AM, drgroup (69.09) wrote:

driven more by slower inventory liquidation ...sales of forclosed property

than by consumer spending"?.... sales generated by us walmarters.

Just my thoughts.

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#6) On January 29, 2010 at 9:22 AM, OneLegged (< 20) wrote:

Here's one take on it.

 

http://market-ticker.denninger.net/archives/1915-GDP-Theres-Your-Inventory-Bounce.html

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#7) On January 29, 2010 at 10:04 AM, russiangambit (29.45) wrote:

I think they meanr intventory restocking and better than expected consumer spending. I guess, we have to congratulate the administration on convincing the population that the things are going to get better and it is now safe to spend. Or may be people simply unable to be prudent for more than a year.

I have another question on GDP - if it was so great where are the jobs? Assuming we are still loosing jobs despite the growth is due to capacity excesses how long GPD has to stay in the 5% area to work off the overcapacity? It is now a quesiton of whether stimulus will last long enough to support GDP of 5% for at least next 6 months. 

 

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#8) On January 29, 2010 at 10:14 AM, portefeuille3 (97.82) wrote:

------------------

Paul Krugman

April 8, 2009, 2:00 pm

The bounce and the revision thing

It’s now looking like a reasonable bet that growth will turn positive later this year, mainly because businesses will decide they’ve cut inventories enough, and ramp up production again. Many will herald this as the end of our problems. But they’ll be wrong, for reasons I laid out during an earlier false dawn, back in early 2002 (the unemployment rate continued to rise for more than a year after that point). I still think this was a pretty good explanation:

Imagine a company that produces widgets (companies in these examples always produce widgets), normally selling 100 each month. The company tries to keep one month’s sales, 100 widgets, in inventory. But for some reason sales drop off, to 90 per month. And it takes a month before the company realizes what has happened.

At the end of that month the company, having produced 100 widgets but sold only 90, finds itself with 110 in inventory, but wants to hold only 90. To eliminate the excess inventory quickly, it might slash production to 70 for the next month, then bump production back up to 90. But unless sales increase again, that’s where it ends: production never recovers to its original level.

As go the widget-makers, so goeth the economy. When demand drops, inventories build up, then production drops sharply as businesses work off the overhang. Finally, there’s an “inventory bounce” when the overhang is gone. But the bounce doesn’t necessarily presage a true recovery. To get that, you need increased sales to final buyers.

But here’s the funny thing: I wanted to include a graph to go with this post, illustrating what happened in 2002. And guess what: that surge in output in early 2002 has been revised out of existence.

More reason to stay cool when the guys on CNBC start bellowing that the recession is over.

------------------ 

 

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#9) On January 29, 2010 at 11:21 AM, leohaas (35.01) wrote:

Inventory restocking and increased consumer spending were the drivers. The WSJ worded it a little awkwardly. We can only speculate as to why (I'd love to, but I won't here on CAPS: speculation will not make us better investors, hence it does not belong here).

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#10) On June 25, 2010 at 5:46 AM, shirtly (< 20) wrote:

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