That doesn't make sense. How can a slower pace of inventory liquidation increase GDP? And if consumer spending didn't increase GDP, then who spent? Government?
“That doesn’t make sense. How can a slower pace of inventory liquidation increase GDP? And if consumer spending didn’t increase GDP, then who spent? Government?”
Well, for lack of time, and a better source, go here:
http://en.wikipedia.org/wiki/Gross_domestic_product
See the distinction between ‘product’ and ‘expenditure’ measure of GDP. From the standpoint of product approach, all production counted into inventory - the ‘slower pace of inventory liquidation’ - would accrue to a higher GDP. Now, that that’s been achieved, unless that higher inventory is consumed and needs to be replenished again, it’s a one time effect.
As to your second question - yes, government is spending, but consumer spending has much more impact (the article writer maintains a 70% impact) on the US economy. Which is why this ‘recovery’ is so phony. Or just downright non-existant.
As an example, a 5% y/y rate of inventory liquidation would decrease GDP by 5% (using a simple 1-for-1 inventory to GDP effect.) A 1% rate would decrease GDP by 1%, so moving from a 5% liquidation rate to a 1% rate has the effect of raising GDP by 4%.