So which is it?
On one hand, the record build up of inventory in the past year and especially in the last two quarters, is the primary reason why so many economists were fooled into believing the US economy was approaching escape velocity, as can be seen in BEA data. On the other hand, the composite of the manufacturing and non-manufacturing ISMs suggest that not only did inventory accumulation halt in the second half, but with a most recent print of 47.5, imply that inventory was already being rapidly liquidated as 2013 was ending.
One thing is clear: they can’t both be correct.
If the BEA data is accurate, then the GDP heading into 2014 will be a major disappointment as $127 billion in inventory will be subtracted from whatever consumption-driven growth there is in the new year (and judging by retailer performance in Q4 as well as the collapse in the personal savings rate, there is hardly anything left in the pocket of the US consumer to drive consumption higher).
If the ISM data is accurate, then recent GDP is set for the mother of all downward revisions, as it becomes clear that growth in H2 was artificially inflated precisely as we explained in December, and about 2% of annualized economic growth has to be removed from Q3 and Q4 numbers, suggesting that the Fed made an epic miscalculation with its Taper timing, withdrawing much needed “flow” injections just as the economy had in reality hit a brick wall.
We eagerly look forward to finding what the answer is to this latest Schrodinger riddle of a schizophrenic economy which, like in China, can magically grow and contract at the same time and but whose real purpose, is to baffle as many with bullshit as possible.