Revisiting Q1 GDP Revisions

Friday, May 30, 2008 | 11:06 AM

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. 


click for embarrassingly large charts



charts by Jake


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 | Comments (18) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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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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