Q1 GDP: Miserable But Maybe The Bottom

The headline number today is the 6.1% drop in GDP for the first quarter. Expectations were for a drop of 4.7%. Let me give you a few of the key statistics and then I thought it might be worthwhile to share some of the commentary I found on the Web today.

The key factor in the decline appears to be a plunge in business investment. Companies cut capital investment at a 38% annual rate and slashed inventories by $103.7 billion. Trade collapsed as exports fell 30% and imports declined by 34.1%. Of some real interest is that the savings rate rose to 4.2%. That’s ominous and positive at the same time. There are a lot of other numbers but I’ll let you pick through them at your leisure. The links at the bottom will get you to the information you need.

Now, first from Jake at EconomPicData. com here are a couple graphical representations of the numbers (click on them for a larger view).

Calculated Risk does its usual great job of tearing apart the numbers. The link will take you to their discussion of residential investment. As they point out, residential investment has been declining for 13 consecutive quarters. It is typically one of the sectors that leads out of recessions so as a gauge it’s a good one to watch. 

Justin Fox at the Curious Capitalist isn’t a raving bull but he does see some positive in the size of the inventory adjustments. His opinion that this could clear the way for a very modest rebound in the second half. He also points out correctly that these numbers are estimates and sure to be amended by the time the final numbers are published (June 1).

Finally, from the WSJ Real Time Economics blog here is a sampling of economists’ views of the data:

The upside surprise in first-quarter consumption largely reflected higher then anticipated spending on services. This will show up as either an unusually sharp gain in March and/or an upward revision to Jan/Feb when the monthly breakdown is released tomorrow as part of the personal income report. From a broader perspective, the modest rebound in first-quarter consumer spending following back to back declines in the second half of 2008, was driven by the upside surprises in the previously reported results for retail control in January and February. However, given the significant fall-off that was seen in March retail control, the ramp points to a renewed decline in consumer spending in second quarter. –David Greenlaw, Morgan Stanley

The downside surprise to our -3% forecast is almost all in capital spending on equipment and nonresidential structures, down 33.8% and 44.2% respectively, and government spending, down by 3.9%… The capital expenditure numbers are hard to square with the monthly data, and we think there is scope for upward revision… Overall, horrible. The second quarter will be less bad. –Ian Shepherdson, High Frequency Economics

Surprising was a -0.35 percentage point contribution from federal defense spending and little change in federal nondefense spending. Presumably, federal spending will boom in coming quarters as fiscal stimulus begins to manifest itself. However, with the budget positions of states and localities suffering (-0.49 percentage point contribution from state and local government spending to overall GDP growth in first quarter following -0.25 percentage point in the fourth quarter), a good chunk of the stimulus is merely going to blunt declines in those categories of spending. –Joshua Shapiro, MFR Inc.

Assuming that there aren’t any nasty surprises around the corner, and there are sure some that could occur, it looks as if there is a chance things may start getting better. I’m still sticking to my view that the second half is going to be much better and could show more strength than most expect.

more: here and here

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