Revisiting Q1 GDP Revisions
The consensus in the media is that revisions higher in GDP to 0.9% means that the US has successfully avoided a recession.
I highly doubt that is the case.
The good news is that, and once again, I can comfortably slip into a (rather than mainstream) contrarian recession call. I was uncomfortable when the masses were ever so briefly agreeing with me anyway.
Why do I disagree? As the chart below shows, the revised GDP gains were 1) National Defense spending by Uncle Sam; 2) Inventory builds; and 3) net exports. That leaves the majority of the economy -- call it "private domestic demand" -- in contraction mode, with an annual rate of -0.4% (vs. -0.7% in advance GDP). Domestic Consumption, Fixed Investment, Exports, and State & Local governments all showed quarter over quarter losses.
Its important to understand the significance of this factor. In the post WW2 era, this is a relatively rare occurrence. Merrill's David Rosenberg points out that "Over the past five decades, such weakness in private domestic demand occurred barely more than 10% of the time." You can bet those times were not brisk expansions.
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click for embarrassingly large charts
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charts by Jake
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Plenty of folks seem to think we have wished our way out of a recession. They need to spend some more time with the actual data.
Friday, May 30, 2008 | 11:06 AM | Permalink
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Is the inventory build a sign that companies are still producing into a slowing economy, are they a sign of execs not buying into the slowing economy meme, or are they simply fiction in order to eke out a positive number?
Posted by: larster | May 30, 2008 11:13:11 AM
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