Sometimes, a good economic datapoint has an unpleasant surprise in the details.

While most people have been focused on the inflation rate, the stock market is largely focused on earnings and GDP growth.  At first blush, the full year GDP growth for 2021 was 5.7%, which is terrific, especially the fourth quarter when growth was a screaming 6.9%.  Wall Street was euphoric!

But wait . . . how could the economy have been so good during the worsening pandemic from October thru December, especially with rapidly increasing inflation and continuing supply chain problems?  The short answer is that it wasn’t that good!

Almost 4.9% of the 6.9% in Q4 GDP growth was increased inventories.  Partially explaining this, analysts have been predicting a big pickup, and retailers prepared for that by ordering more goods to sell.  Also, the supply chain shipping problems are unwinding somewhat, allowing previously ordered goods to finally be delivered.  However, as the pandemic worsened and people deferred their shopping, we saw a decrease in demand.

Consumer spending or demand fell 0.6% in December alone. Rising inventories amid falling demand is a bad combination.  If demand remains at this decreased level, it will also remove some inflationary pressure.

Most economists are predicting a mere 1.5% GDP growth rate in the first quarter of this year and 3% GDP full year growth, which is still more than we averaged during the past thirty years and would be great . . .  but watch the ugly details inside the headlines.