Final Q4 GDP: Goldilocks has left the building
Markets rallied yesterday morning on the Final GDP data, revised to 2.5% - up from 2.2% Preliminary report (2/28) but down from the initial Advance (1/31) read of 3.5%. But the indices gave up those gains and then some as the day wore on. A little "window dressing" into quarter's end closed the markets in the green by day's end.
Was the GDP "improvement" really all that good? A quick look at the details suggests otherwise.
The 0.3% improvement was two parts inventory build (primarily autos), one part GDP deflator "adjustment." Pretax corporate profits decreased 0.3% in the fourth quarter of 2006, the first quarterly decline since the third quarter 2005.
CapEx spending remains punk, as corporate management is cutting back on all manners of spending to avoid eating into profits -- short term thinking at its finest. Nonresidential investment fell 3.1% for Q4, worse than the initially reported decline of 2.4%. But the big miss was Equipment and software spending -- down 4.8% (vs initial -3.2%). This is consistent with the series of weak durable-goods reports we hav sen the past few months.
Signs of economic strength? Hardly.
Reuters:
The overall trend of GDP, corporate profits, durable goods and CapEX spending is downward. Housing, Autos, and Manufacturing are already in a recession (I have a car coming off lease May 1st, and I plan on waiting some time to see what sort of incentives the auto industry will be throwing my way as inventory continues to build). I don't see how these issues get any better any time soon.
Goldilocks has left the building . . .
>
Source:
U.S. GDP growth hobbled by stocks of unsold goods
Rising inventories, give year-end lift but spending curb suggests slowdown
Glenn Somerville
Reuters Mar 30, 2007 04:30 AM
http://www.thestar.com/Business/article/197577
Friday, March 30, 2007 | 06:45 AM | Permalink
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Comments
The NY Post had an article yesterday saying milk will be up 24% y-o-y...24%!!!!!
Luckily there is no inflation and we don't need milk, otherwise that would really suck.
Posted by: Sammy20 | Mar 30, 2007 8:26:17 AM
That's a whole lot of furious spinning you're doing there, Barry. You managed to turn unexpected strength in the GDP numbers into a big downer.
~~~
BR: It is what it is -- those are where the 0.3% gains from the 2nd to the final GDP data came from.
You can accept the headline number, or you can drill down and see what's behind them. I choose to get deeper into the data analysis and see how the headline number came about.
Posted by: Nova Law | Mar 30, 2007 8:28:49 AM
Mr. Market rarely trades on data because data is what everyone already knew.
We have shifted from heavy short to some long positions especially mortgage issues!
Posted by: toon | Mar 30, 2007 8:32:47 AM
Well, a cheerful Friday morning to you, too!
Posted by: wally | Mar 30, 2007 8:54:23 AM
This morning consumer spending is up, up, up so the economy must be doing really well. Go back to sleep, all is well.
Posted by: Winston Munn | Mar 30, 2007 8:55:45 AM
"CapEx spending remains punk, as corporate management is cutting back on all manners of spending to avoid eating into profits -- short term thinking at its finest."
Is there any other way in publicly-traded corporate America today (unless you are Warren Buffett, Eddie Lampert, etc.)?
I am hoping Nova Law is being sarcastic.
Posted by: Chad | Mar 30, 2007 9:05:09 AM
She may have left the building, but have the bears finished shitting in the woods?
Posted by: old ari | Mar 30, 2007 9:11:16 AM
The NY Post had an article yesterday saying milk will be up 24% y-o-y...24%!!!!!
Luckily there is no inflation and we don't need milk, otherwise that would really suck.
I don't know if I would take any economic data from the Post to truthful.
Posted by: costa | Mar 30, 2007 9:16:04 AM
Brusca had been predicting increasing economic strength that would cause the Fed to raise rates by year end.
Posted by: zell | Mar 30, 2007 9:22:23 AM
At leaset PCE and Core PCE are down...
Posted by: Josh | Mar 30, 2007 9:31:26 AM
Chicago PMI 61.7...come back Goldi, all is forgiven...
Posted by: Macro Man | Mar 30, 2007 9:47:01 AM
Nova-
That "unexpected" in the same way that the housing numbers on monday were also "unexpected.
It's only unexpected if you don't read, interpret or have any of your own opinion...but I digress. I guess it's just a "surprise"...
Ciao
MS
Posted by: Michael Schumacher | Mar 30, 2007 9:47:27 AM
What is up with that Chicago PMI number? Where did that strength come from?
Posted by: Steve | Mar 30, 2007 9:53:06 AM
We still have bernancke speaking at the CBOT later.......not over yet. It could close over 100pts and it would'nt surprise me a bit after Benny-boy opens his mouth and saves the day for everyone.
Ciao
MS
Posted by: Michael Schumacher | Mar 30, 2007 10:01:54 AM
I've been reading this blog almost daily for about a year. I am not an economist or a stockbroker. I took one course in finance that mentioned a lot of the principles discussed here. I have a question about the validity of the Treasury yield curve as a predictor of a recession. For the past year or so, the yield curve has been inverted, which historically presages a recession. I follow the treasury yields posted daily the business section of the paper. Recently, the yield curve has appeared to start "un-inverting". The shorter term yields are dropping, and the 30-year is rising. My question is, when that happens, does it mean that the risk of recession is lessening, or is the Treasury yield curve no longer an accurate predictor? If we are in an inflationary environment, why are the shorter term Treasuries yields dropping?
Posted by: Valdan | Mar 30, 2007 10:07:30 AM
My pet theory is we're in a period that's the opposite of Goldilocks, not hot enough to goose corporate profits, not cold enough to get the Fed to drop rates. In other words, just wrong.
Posted by: Paul | Mar 30, 2007 10:09:30 AM
Now that we have Feb real PCE data it looks like 1st Q real PCE growth is almost certain to be weaker then 4th Q -probably something on the order of 3.7% versus 4.2%. So to get a stronger 1st Q we are going to have to find a significant area of strength somewhere else.
Good luck.
Posted by: spencer | Mar 30, 2007 10:12:58 AM
Well Valdan, there's no more talk about the inverted yield curve being the harbinger of recession because the yield curve is no longer inverted.
http://tinyurl.com/ywg2nq
Of course, there has been very little discussion of this fact here, since it doesn't support the "Sky is Falling" doomsayers.
You all keep depositing those gold coins in your coffee can buried in the back yard. As for me, I'm up 19% in the last year while everything was supposedly going to hell.
Posted by: Nova Law | Mar 30, 2007 10:38:40 AM
Come on Barry...that's why they call it a "soft landing"...rather than a soft take off.
What is the "dis-inverting" yield curve suggesting to you??
Posted by: Fred | Mar 30, 2007 10:45:00 AM
typical response..."I don't care.. I got mine" you most likely think Steve Jobs did'nt do anything either if you own apple stock.
Ciao
MS
Posted by: Michael Schumacher | Mar 30, 2007 10:45:43 AM
A couple of good economic #'s report and all of a sudden the world's suddenly sunnier !?!?!?!?!
simmer down boys and girls , we'll get a few bad reports next week , this movie is only half way through
Posted by: tt | Mar 30, 2007 10:50:02 AM
Valdan, also see here
Posted by: Macro Man | Mar 30, 2007 10:55:30 AM
Goldilocks has left the building...
maybe she will be re-hired at a lower wage ala
circuit city.
Posted by: MarkTX | Mar 30, 2007 10:58:27 AM
Valdan,
Here is another take on the inverted/un-inverted yield curve discussion.
"When the curve begins to steepen out of an inversion, the recession alarm bells go off."
Obviously, you can steepen two ways--you can drop short rates, or raise long rates. According to this article, after an inversion, the curve will steepen prior to the recession as the "price of money" (interest rate) rises. Since they aren't dropping short rates, must be the price of money is rising. The question is...why is that happening? They suggest possible caution against faulty lending (i.e, subprime), or because the Fed is not feeding the system as much as they were. It is a bit long winded, but I found the whole article interesting.
http://globaleconomicanalysis.blogspot.com/2007/03/is-fed-really-pumping-money.html
Posted by: Polly Anna | Mar 30, 2007 11:17:35 AM
Thanks for the info, Macro Man and Nova Law. Nova, I have likewise been pleased at how my modest investments have performed in the last year. I am going to put an entry in my Outlook calendar for a year from this time, to see if a) the economic sky has fallen b) we have nuked Iran c) oil is $200 a barrel d) gold is $1000 an ounce and e) the Dow is at $7500 as the various sages of the internet have been intoning .
I have a feeling on March 30, 2008 I will be ROFLMAO.
Posted by: Valdan | Mar 30, 2007 11:19:29 AM
