Where’s Waldo In The Alleged “Blistering” GDP Report?

There was supposedly great economic news this morning, with Q4 real GDP posting at +3.44%. So we got to wondering about what actually happened on the main street economy if you set aside the risible claim that Q4 inflation (via the GDP deflator) rose by only 1.66% at an annualized rate and that Federal spending contributed only 4.8% of this allegedly robust output gain.

That’s right. Notwithstanding the current tsunami of Federal borrowing and spending, the green eyeshades at the BEA averred in their report this AM that real GDP rose by $188 billion during Q4 but only $9 billion was due to the increase in Federal spending.

Say, what? It just happens, as we amplify below, that Federal debt held by the public rose by a staggering $611 billion during the quarter. So where did it go if the Federal spending contribution to GDP amounted to only 1.5% of that amount?

Moreover, even if you set aside the BEA’s flakey inflation adjustments, the story is the same. According to our official economic tabulators, nominal Federal spending grew by $28 billion in Q4 or by just 4.6% of the rise in publicly held debt.

So the question recurs: Where’s waldo?

Obviously, you can also take the 1.66% change in the GDP deflator with a grain of salt. Even the heavily manipulated CPI puts the kibosh on that fanciful figure. Thus, the annualized increase in Q4 was +2.7% for food, +3.5% for services and +4.8% for shelter. Since those items account for nearly 78% of the weight in the CPI, getting the average down to 1.66% isn’t just a push: It’s well-nigh mathematically impossible!

Indeed, if you just take our trusty 16% trimmed mean CPI, which rose at a 3.2% rate during the quarter, as a more realistic deflator, you end up with Q4 growth of just 1.6%. That’s not anything to write home about, even if Sleepy Joe’s minions want you to believe it.

More importantly, we doubt that honest-to-goodness growth last quarter was even 1.6%. That’s because when you look at the internals of the GDP data you are reminded that the national income and product accounts (NIPA) were designed by Keynesian true believers more than half century ago, meaning that they are not nearly what they are cracked up to be.

Thus, consider the Federal debt and nominal GDP data (thus removing the flakey “deflator” distortion) on a plain old top line cash flow basis. The skunk on the woodpile becomes immediately apparent.

Nominal GDP, which represents the sum of all spending during Q4 by everybody—households, business, governments and the export/import sector—posted at $27.957 trillion compared to $27.610 trillion during Q3 2023. But these are annualized levels, so when we divide by four, we get $6.989 trillion and $6.903 trillion, respectively, as the actual GDP generated during each of the last two quarters.