Stéfane Marion and his team at National Financial Group came up with another fascinating unique analysis of economic relationships. To read in conjunction with yesterday’s post BUSINESS INVESTMENT COMING BACK. IS EMPLOYMENT NEXT? Rising employment would do wonders to final demand.
Real GDP shattered expectations in Q4 by surging 5.7%, the biggest increase since 2003 Q3. Most of the rise came from inventory accumulation which accounted for 60% of the growth (or 3.4 percentage
points). Final domestic demand was up only 1.7%, a little softer than the 2.3% growth registered in Q3. Given this development, it is important not to get carried away by the headline GDP number. Inventories will only be absorbed if final domestic demand picks up in the coming months.
Fortunately, there is some indication of a revival in the private sector. As today’s Hot Chart shows, business sector nominal GDP (a proxy for top-line) surged 7.2% in Q4. This type of growth was more than enough to prod corporations into increasing their volume spending on machinery & equipment by the most in four years (+13.3%). As shown, business investment in equipment & software has been a harbinger of job creation in each of the past recoveries.