Home > Main > Deutsche Bank Agrees with TC: The GDP report was Great and the Corporate Tax cut will help tremendously

Deutsche Bank Agrees with TC: The GDP report was Great and the Corporate Tax cut will help tremendously

February 8, 2011

I pointed out in a prior post that the GD report was great for two reasons

  1. Top line growth was astonishing
  2. Inventory numbers means that this quarter was likely to be good just from restocking alone.

Then, I also pointed out months ago that the business tax cut was coming at a perfect time in the economic cycle to provide an unexpectedly large boost to the U.S. economy.

The inventory adjustment that subtracted 3.5% or so was a big, big deal.  Any upward change in inventories is going to add to GDP growth next quarter.  What if we get a 2.5% due to just inventories? It is possible we could have a 6% print for Q1.

Through Business Insider:

Based on the mix in Q4 2010 real GDP, which showed 7.1% growth in final sales but only a $7B increase in inventory building, we should see significantly more inventory accumulation this quarter, enough to propel output up to +4.5% (see chart in attachment). The combination of strengthening demand and negligible inventory levels means that the restocking of goods should proceed at a faster pace this year relative to what we initially expected.  Certainly, this is what the January ISM survey appears to be telling us—the headline figure posted its highest reading in since May 2004.  All of the subcomponents increased, and new orders, the most forward-looking component, made a new cyclical high. In fact, this new information points to strengthening capex relative to our baseline expectation, which we had worried was too low because we had not fully accounted for the increase in accelerated depreciation in our previous forecast: Companies can now expense 100% of their capex this year and 50% next year, which could lift 2011 real GDP $60 to $70 billion.

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