GDP Numbers Skewed. The markets shrugged off reports of a sharp drop in consumer confidence and a contraction in 2012 Q4 GDP failed to depress stocks. The decline of 0.1% in the reported preliminary 4Q GDP misrepresents what really happened. The decline, which is an “annual” rate, was driven downward by two factors: a slower growth in inventories and sharply falling commodity prices. The fall in inventories means they have to be replaced. That’s good news for production in the first quarter. Commodity prices are already rebounding, adding to the first quarter spending pace. Without these to factors, real output would have increased at about the same as it has been increasing all 2012. We forecast that 4Q will be revised upward slightly into positive territory. For 2013, look for a 1Q growth rate of 2.5% and 2Q growth of 3.1%.
China to get unions. For the first time in China’s history, a major company is holding true elections for a union. Foxconn, a Taiwanese company with a reported 1.2 million mainland-based workers is holding free elections. Traditionally, management controlled the unions. However, in this case there will be only junior employees involved in the labor union management and no company executives. Sign of democracy growth.