GDP = 1.3%
By now, you know the GDP came in way below consensus. Given recent revision history, its very likely this will not be the final number.
The economy slowed to its weakest pace of gains in 4 years, when GDP was 1.2% during Q1 2003.
Housing gets most of the blame (duh), but do not ignore the accelerating inflation factor as a key element. Most traders realize the Fed is watching that component closely; Hence, why you are not hearing the usual "Rate Cut" chants from the cheap seats. PCE rose 3.4% (it decreased 1.0% Q4) Even the nonsensival core PCE (ex food and energy) was plus 2.2% (following 1.8% Q4).
International trade, Business Capex spending, Inventory growth, and decreased government spending all weighed on the economy to produce that 1.3% number.
The one bright spot: Durable goods. Plus 7.3% in Q1 follows +4.4% in Q4. Pretty much everything else was punk.
Nice table via the WSJ:
| GDP Component | Added (subtracted) from GDP (%) |
| Residential fixed investment | (0.97) |
| International trade | (0.52) |
| Inventories | (0.30) |
| Consumer spending | 2.66 |
| Business spending | 0.21 |
| Government spending | 0.18 |
| Source: WSJ, Commerce Department | |
Source:
U.S. Economic Growth Is Slowest In 4 Years Amid Housing Slump
JEFF BATER
WSJ, April 27, 2007 9:58
http://online.wsj.com/article/SB117767443639284710.html
Friday, April 27, 2007 | 11:00 AM | Permalink
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» Economy Slumps, Stagflation Watch Begins from TAM Money and Finance
The faltering housing market placed its stamp on the overall economy with the news that GDP slowed to 1.3% growth in the first quarter of 2007. The negative effects of the housing slump are understandable. What should concern is the possibility of stag... [Read More]
Tracked on Apr 27, 2007 1:38:58 PM
Comments
Consumers are still spending like crazy? That leg looks solid on the outside but it's rotting on the inside.
Posted by: wunsacon | Apr 27, 2007 11:42:34 AM
For me, The Big Picture continues to be the divergence between equities and the man on the street. People in trouble turn to the existing government first, or try to create their own government second. Neither is good for long-term growth. Unfortunately, this generation of business leaders seems unlikely to pull off voluntary changes to reduce the contrast in the system.
Posted by: Paul Jones | Apr 27, 2007 11:44:00 AM
Headline we won't read tomorrow:
"Blowout Increase in Consumer Debt Averts Recession"
Posted by: Robert Cote | Apr 27, 2007 11:44:14 AM
Thanks to aerospace in durable goods contributions...otherwise its a different picture.
For all the amature economists, Barry used to have a book featured on the sidebar called "the secrets of economic indicators" by Baumohl. This explains a lot and put more figures into perspective than just the headline figure that pops up on tv.
I highly recommend it. I first got it at the library, then had to buy it as a constant reference.
Posted by: Josh | Apr 27, 2007 11:56:47 AM
Josh --
Thanks for book tip.
Posted by: MAS (San Diego) | Apr 27, 2007 12:27:03 PM
How much of this consumer spending is coming from consumers taking on more debt.?
If they are already in debt up to their eyeballs why should we expect them to stop spending? I see them getting into debt up to their hairline.
Posted by: Sponge Todd Square Pants | Apr 27, 2007 12:34:12 PM
Low growth and evidence of price pressures. It's the worst of both worlds. And yet the equity market has barely nudged.
Posted by: Caravaggio | Apr 27, 2007 12:38:17 PM
What Sponge Todd said.
Posted by: John | Apr 27, 2007 12:38:34 PM
I would have bet on a big drop in the market with a GDP of 1.3% today, good thing I am not a betting man...Trade the trend baby...But I sense the bottom may be falling out any day now???
Posted by: sccofer | Apr 27, 2007 12:48:15 PM
Kash has a nice graph on Street Light that tells the story pretty well:
http://streetlightblog.blogspot.com/2007/04/gdp-growth-update.html
Posted by: JKR | Apr 27, 2007 12:51:04 PM
Simple answers to simple questions:
Is Stagflation still Stagflation even if it is not (Yet) at previous levels ?
Why yes, Stagflation is Stagflation, whether it is Mini or Midi or Maxi, it's just a matter of degree.
.
Posted by: VJ | Apr 27, 2007 12:56:01 PM
GDP is a distorted measure. It measures activity...good or bad. Hailstorms increase GDP as much as building a house...opps they don't build em anymore.
We used to measure GNP which included international capital flows usually into the U.S.. If we were still measuring GNP it would have been a negative number. Get rid of one distortion and up pops another. Last time we had a measurable recession we didn't 'know about it' till it was over. Samo samo this time...
Posted by: Ross | Apr 27, 2007 12:57:22 PM
Kevin Tuttle at Minyanville penned an excellent piece on where the DJIA is currently, and where its been over the past century, from a technical analysis perspective.
It's long, but a very good read.
Posted by: S | Apr 27, 2007 1:30:10 PM
Sponge Todd - "How much of this consumer spending is coming from consumers taking on more debt.?"
Interesting question. My thesis is consumer debt creation is peaking out and being replaced by corporate sector debt creation.
Consumer debt from http://www.federalreserve.gov/releases/g19/Current/
06q1-- 2.1
06q2-- 6.1
06q3-- 5.4
06q4-- 4.5
07Jan- 3.3
07Feb- 1.5
I expect March will up over Feb, but the trend appears to be slowing. This suggests spending isn't coming from increasing consumer debt. More likely from big yearend bonuses, tax refunds, etc. This is consistent with the general pattern in retail sales (lower end stagnant, high end still good).
Posted by: Estragon | Apr 27, 2007 1:30:20 PM
If anyone has extra freetime on their hands, what would have GDP growth been since 2003 if the Iraq war costs are backed out proforma?
Posted by: johntron | Apr 27, 2007 1:35:59 PM
Does anyone know if military hardware is counted as "durable goods."
Posted by: levi civita | Apr 27, 2007 1:45:43 PM
Does anybody else notice that the market is disconnected from reality? Housing down and pulling everything with it...the market goes up. Consumers spending to debt levels that can't be sustained..the market goes up. You name anything that you would think effect it and the market still goes up. Just a thought.
Posted by: mDave | Apr 27, 2007 1:48:28 PM
mDave,
Jeremy Grantham calls it the dramatic "exponential phase" as happened before March 2000.
http://biz.yahoo.com/ts/070427/10353243.html?.v=2
Posted by: grodge | Apr 27, 2007 1:55:48 PM
Is Stagflation still Stagflation even if it is not (Yet) at previous levels ?
Why yes, Stagflation is Stagflation, whether it is Mini or Midi or Maxi, it's just a matter of degree.
The inflation we have today (which comes from excessive borrowing) couldn't be more different from the inflation we had in the 70s (which came from rising wages).
The 70s style inflation is robust and will tend to accelerate over time if left "untreated". Today's inflation is fragile and will tend to collapse into deflation in the long run if unmitigated.
Apples and oranges.
Posted by: super-anon | Apr 27, 2007 2:04:00 PM
well, my curiosity over the Iraq war lead me to the following very rough, back-of-the-envelope calcs:
Cash outlays for the war est $100b a year;
2005 year end GDP; roughly $12,500b
let's say GDP grew roughly 2.5% yoy in '06
net $312b growth of GDP.
so let's say one-third of GDP growth in 2006 was attributable to Iraq/Afghanistan "supplemental/emergency" war spending.
My brother's in his first week in Iraq right now....said last night was surf n' turf night....porterhouse + scallops, yum.
Good to know that at least some of the $100b+ sees its way to the rank-and-file.
Posted by: johntron | Apr 27, 2007 2:07:12 PM
The inflation of the 70s started off with deficit spending and huge increases in commodities. Later, wages tried to catch up. (Notice it's only a bad thing when wages increase. Rampant asset increases are viewed favorably. God forbid people make more money working rather than sitting on their laurels/capital.)
Fast forward to today, it seems similar to me.
Posted by: wunsacon | Apr 27, 2007 2:24:15 PM
The inflation of the 70s started off with deficit spending and huge increases in commodities. Later, wages tried to catch up. (Notice it's only a bad thing when wages increase. Rampant asset increases are viewed favorably. God forbid people make more money working rather than sitting on their laurels/capital.)
Fast forward to today, it seems similar to me.
The fundamental difference is that today we have much greater debt burdens and debt servicing costs. So price increases are far more dependent on this debt increasing. Just look at housing - as soon as mortgage debt started declerating we began to see deflation in that market. We're also beginning to see signs of deflation in highly discretionary consumer items now, something that may also be related to decreased mortgage borrowing.
I think this may characterize the broader economy too - overall debt burdens are so substantial relative to incomes (primarily in the consumer economy, but that's enough) that I think a slowdown in borrowing will choke off any rise in wages and revenues.
This is a very different scenario from the 70s IMO.
Posted by: super-anon | Apr 27, 2007 2:40:37 PM
With all this "slowdown" talk, you might have missed (or ignored) this minor "nugget" of important news:
April 25 2007: 6:16 PM EDT
WASHINGTON (Reuters) -- The U.S. budget deficit for the current fiscal year appears on a course to come in lower than the $244 billion forecast by the White House earlier this year, a senior U.S. official said Wednesday.
"We're a little ahead of schedule. We expect, at the midsession review, we'll be able to announce the deficit is lower than projected for this year," White House Budget Director Rob Portman told Reuters in an interview.
"That's because of strong revenues and a little better restraint on spending so far," he said.
-------------------------
April 25 2007: 5:33 PM EDT
WASHINGTON (Reuters) -- Tax receipts from individuals hit a record one-day high of $48.7 billion on April 24, a Treasury Department official said on Wednesday.
The previous record was $36.4 billion, set on April 25, 2006, said Jennifer Zuccarelli, a Treasury spokeswoman.
The record reflects taxes not withheld from individuals over the course of the year, but paid to the government before this year's April 17 income-tax deadline.
While some of those tax payments come from taxpayers who withheld less tax from their paychecks than they owed, much of it was owed on income from investments or profits.
-------------------------
So if this is a slowdown, I can't wait for the "recovery"!
Posted by: Fred | Apr 27, 2007 2:48:29 PM
'Fred' posted:
"The U.S. budget deficit for the current fiscal year appears on a course to come in lower than the $244 billion forecast by the White House earlier this year"
Closer to $800 billion.
"Tax receipts from individuals hit a record one-day high of $48.7 billion on April 24, a Treasury Department official said on Wednesday."
The rich get richer, they pay more taxes.
"So if this is a slowdown, I can't wait for the "recovery"!"
Record high federal deficits, record high bankruptcies, record high home foreclosures, declining wages, increasing Poverty, down millions of jobs since 2000, and the DJIA needs to be 14,000 just to get back to where it was in 2000....
If this is a recovery, I'd hate to see a slowdown.
.
Posted by: VJ | Apr 27, 2007 3:10:30 PM
Good point, Fred. The people around here have been waiting for a massive drop in the markets since it hit its top way back in January 2004:
http://bigpicture.typepad.com/comments/
2004/01/market_flashes_.html
As for me, I've made a fortune while these guys have been on the sidelines because of the "overpriced" market. :-)
Posted by: Nova Law | Apr 27, 2007 3:26:08 PM
