Why GDP is wrong

Well, misleading. While today's focus has been on the better-than-expected growth rate for the fourth quarter, The Big Picture's Barry Ritholz gloms onto another indicator, what he calls "the best economic gauge you have never heard of." It's the Chicago Fed's National Activity Index. Huh, you say? It doesn't appear on any of the big economic calendars, and gets next-to-no media attention. But according to TBP, it does a great job of tracking the economy's health. And the December numbers ain't so hot.

The question now -- as I've been opining for quite some time -- is to sustainability. We're clearly faltering, with nary a green shoot in sight (witness the just-released Durable Goods orders and weekly Unemployment Claims, which were both weaker than expected). Lots of interesting numbers coming out over the next week, culminating with Friday's jobs report. The stock market is, perhaps, starting to recognize the loss of momentum.

Maybe. The Dow was down another 53 points today, capping off a rotten two weeks that has the index barely above 10,000. That's on the same day as the GDP release. As explained by Derek Thompson, the NAI tracks 85 economic indicators and lumps them into four big categories: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Long story short, production is doing well, but employment is not, and housing and consumer spending aren't doing much of anything. Even today's otherwise cheery GDP report shows that consumer spending grew at an annualized pace of 2 percent, not an especially good number (Q3 shows an increase of 2.8 percent). No big bump in consumer spending, no big bump in the recovery.