US GDP data show stagflation

Net of inventory accumulation, real GDP for the third quarter was slightly negative, US government data released Thursday morning show. Real GDP grew at an annual rate of 2%, below the forecasters’ consensus of 2.6%, the Commerce Department reported. But a jump in inventories added 2.07 percentage points annualized to GDP. That’s more than the reported growth.

That’s a very odd number, considering that the inventory-to-sales ratio of US business stands at the lowest level on record, due to supply-chain constraints that prevent businesses from restocking. It’s likely that the inventory number was exaggerated. If that’s true, the US economy shrank during the third quarter.

The GDP measure of inflation rose at a 5.7% annual rate during the third quarter, following a 6.2% rate of increase during the second quarter. After inflation, final sales to domestic purchasers rose at an annual rate of just 1%. That’s a textbook portrait of stagflation.

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