New numbers out Thursday show America’s third quarter gross domestic product rose 2.8 percent, well above what economists predicted. The headline number may sound good at first, but it masks signs of ongoing economic weakness deeper in the report.
A bit of digging shows that 0.83 percentage point of the GDP boost came from the change in real private inventories. It may sound like an obscure technicality, but it is not. It’s actually quite simple and simply bad.
“Stores were accumulating a lot of goods to sell, but people weren’t buying them,” says Julia Coronado, chief North American economist at BNP Paribas.
You can see this at Big Fun Toy Store, a Cleveland shop specializing in collectibles. Owner Steve Presser says unexpectedly low third quarter numbers had him feeling as blue as the many Smurf toys lining his shelves.
“What we try to do, of course, is sell through our inventory,” Presser explains. “But if we buy too much in any given month, in this case it was September, I was a little concerned because we were hoping to have a strong summer going into the fall in the final quarter.”
Presser sells My Little Ponies too, but not enough bronies are buying them, an alarming development as his store enters its critical time.
“If I’m a retailer going into the holiday season, I’m very concerned right now,” says Hamilton College economics professor Ann Owen, who is talking about more than just tightwad Pony fans, of course. “Consumer confidence is low. The unemployment rate is still relatively high, and all of that impacts consumers’ decisions about making purchases.”
GDP is more than a single number — it’s a bit like the Voltron set Presser sells, a big robot made out of several little ones (in that case, with animal heads, which are pretty cool) — GDP is made of a number of numbers, and in this case, a small one, about inventories, tells us a little more than the big number. It’s an economic warning, but Presser is confident consumer spending will rebound toward the end of the year.
“I’m always a superior optimist and I’m looking for a very, very strong holiday season,” Presser says.
In other words, a seller of heroes and villains is confident good will prevail.
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