GDP Report Misleads on Inventory Build
The market was closely attuned and received "good news" this morning, supposedly. Q1 GDP was reported 0.6% higher, but the numbers deceive.
First Quarter GDP
This morning's advanced reporting of GDP showed surprising growth, despite economists' projections for the same. The market, after all, was expecting recession no? Economists were actually projecting 0.3% growth, or better than recessionary data anyway. We got an even better showing, as Q1 GDP was reported 0.6% higher, matching the rate of growth seen in the fourth quarter of '07. So what gives?
One important driver of GDP stood out like a sore thumb as a false prophet, albeit an expected one. Inventories increased at a $1.8 billion annual rate, adding 0.81% point to GDP. The thesis here is that inventories rose because sales slowed, and despite just-in-time pervasion, this appears to be the case. Some analysts found optimism in the narrowing of the trade deficit, but we argue that this has as much to do with the decline of American consumption of imports as it has to do with increased demand for cheaper U.S. goods overseas (exports). However, imports increased, while at a slower pace than exports.
There's no doubt that American goods are in high demand overseas though. Thanks to the Internet and efficient shipping and distribution channels, it's relatively easy for foreigners to attain U.S. goods. The Greek has the unique privilege of access to Greek TV, and inflation mania and competitively priced U.S. goods are gaining a lot of media attention in Europe. As a matter of fact, after seeing the European Union's spring forecasts and watching the related media coverage, I'm certain the EU will not be cutting rates anytime soon. In fact, a rate hike is very possible. Thus, any near-term strength in the U.S. dollar that might result from a shift in Federal Reserve policy could be quickly negated.
Within the GDP report, it's important to note that household consumption grew at a pace only matching levels seen during the last U.S. recession, so the likelihood of Q2 contraction seems solidified. There's no doubt that the tax rebate checks are arriving just in time, and wouldn't it be a amazing if the government's stimulus managed to keep GDP in the green in Q2. If that happened, wouldn't we have to give due credit to President Bush and his treasury secretary. Remember, George's strength coming into his presidency was not foreign policy as you may have suspected, but in fact was his economic prowess... Considering the money spent to fund the Middle Eastern efforts during his stay, George has done a decent job at thus far keeping the U.S. out of dire depression, but maybe that just takes more time. All is not said and done just yet, as consumer spending only rose 1% in Q1, and personal consumption for March will be reported tomorrow (things could get worse when GDP is revised in May).
Business fixed investment declined at an annual rate of 2.5%, so one has to wonder if it's too early to be picking at tech stocks. Often times, these stocks run higher on anticipation, retrench on reality and then move in earnest (still ahead of economic recovery). So, be aware that semiconductor and semi-equipment names (AMEX: SMH), and other very cyclical plays should prove volatile while they generally rise ahead of recovery.
First Quarter GDP
This morning's advanced reporting of GDP showed surprising growth, despite economists' projections for the same. The market, after all, was expecting recession no? Economists were actually projecting 0.3% growth, or better than recessionary data anyway. We got an even better showing, as Q1 GDP was reported 0.6% higher, matching the rate of growth seen in the fourth quarter of '07. So what gives?
One important driver of GDP stood out like a sore thumb as a false prophet, albeit an expected one. Inventories increased at a $1.8 billion annual rate, adding 0.81% point to GDP. The thesis here is that inventories rose because sales slowed, and despite just-in-time pervasion, this appears to be the case. Some analysts found optimism in the narrowing of the trade deficit, but we argue that this has as much to do with the decline of American consumption of imports as it has to do with increased demand for cheaper U.S. goods overseas (exports). However, imports increased, while at a slower pace than exports.
There's no doubt that American goods are in high demand overseas though. Thanks to the Internet and efficient shipping and distribution channels, it's relatively easy for foreigners to attain U.S. goods. The Greek has the unique privilege of access to Greek TV, and inflation mania and competitively priced U.S. goods are gaining a lot of media attention in Europe. As a matter of fact, after seeing the European Union's spring forecasts and watching the related media coverage, I'm certain the EU will not be cutting rates anytime soon. In fact, a rate hike is very possible. Thus, any near-term strength in the U.S. dollar that might result from a shift in Federal Reserve policy could be quickly negated.
Within the GDP report, it's important to note that household consumption grew at a pace only matching levels seen during the last U.S. recession, so the likelihood of Q2 contraction seems solidified. There's no doubt that the tax rebate checks are arriving just in time, and wouldn't it be a amazing if the government's stimulus managed to keep GDP in the green in Q2. If that happened, wouldn't we have to give due credit to President Bush and his treasury secretary. Remember, George's strength coming into his presidency was not foreign policy as you may have suspected, but in fact was his economic prowess... Considering the money spent to fund the Middle Eastern efforts during his stay, George has done a decent job at thus far keeping the U.S. out of dire depression, but maybe that just takes more time. All is not said and done just yet, as consumer spending only rose 1% in Q1, and personal consumption for March will be reported tomorrow (things could get worse when GDP is revised in May).
Business fixed investment declined at an annual rate of 2.5%, so one has to wonder if it's too early to be picking at tech stocks. Often times, these stocks run higher on anticipation, retrench on reality and then move in earnest (still ahead of economic recovery). So, be aware that semiconductor and semi-equipment names (AMEX: SMH), and other very cyclical plays should prove volatile while they generally rise ahead of recovery.
Motor vehicle output subtracted 0.3% from GDP, and despite Ford's (NYSE: F) recent strong report, General Motors (NYSE: GM) today announced plans to reduce production capacity to match current economic realities and lighter demand.
Prices paid increased 3.5%, and when excluding food and energy (as if they didn't matter - don't shoot me, I'm just the messenger) prices increased 2.2%, versus 2.3% in Q4 '07.
Employment Data
ADP Private Employment Report
Don't get too excited about the positive number from ADP this morning. The 10,000 reported April jobs increase for the private sector compares to a revised March figure of +3K. So, this does not signify that the economists' consensus view for nonfarm payrolls, to be reported on Friday, is grossly mistaken at negative 75,000. Last month's nonfarm decrease measured at 80,000, despite the +3K figure from ADP.
The usual suspects were to blame in the weak jobs figure, as large and medium sized businesses led the attrition, or near attrition. Also, manufacturing, construction and financial lending related to construction and home ownership suffered again. Small businesses continue to grow, but we expect much of the current growth will hit a brick wall later this year, and many small businesses should fail considering the state of the consumer.
Employment Cost Index
Employment costs rose 0.7% in Q1. Lets think about why. First of all, the population continues to grow despite economic deceleration. Prospective parents were not considering the potential recession of 2008 when they were conceiving their children 19 years ago. Shame on you! Also, inflation adjustments continue as part of employment contracts, and have not been overwhelmed by job cuts, and may never be unless things get really horrible.
The market digested the tasty data well this morning, still ahead of the afternoon FOMC announcement. The Dow Jones Industrials ^DJI (AMEX: DIA), Standard & Poor's 500 ^GSPC (AMEX: SPY) and Nasdaq ^IXIC (Nasdaq: QQQQ) all increased fractionally in the AM.
Please see our disclosure at Wall Street Greek.
Employment Data
ADP Private Employment Report
Don't get too excited about the positive number from ADP this morning. The 10,000 reported April jobs increase for the private sector compares to a revised March figure of +3K. So, this does not signify that the economists' consensus view for nonfarm payrolls, to be reported on Friday, is grossly mistaken at negative 75,000. Last month's nonfarm decrease measured at 80,000, despite the +3K figure from ADP.
The usual suspects were to blame in the weak jobs figure, as large and medium sized businesses led the attrition, or near attrition. Also, manufacturing, construction and financial lending related to construction and home ownership suffered again. Small businesses continue to grow, but we expect much of the current growth will hit a brick wall later this year, and many small businesses should fail considering the state of the consumer.
Employment Cost Index
Employment costs rose 0.7% in Q1. Lets think about why. First of all, the population continues to grow despite economic deceleration. Prospective parents were not considering the potential recession of 2008 when they were conceiving their children 19 years ago. Shame on you! Also, inflation adjustments continue as part of employment contracts, and have not been overwhelmed by job cuts, and may never be unless things get really horrible.
The market digested the tasty data well this morning, still ahead of the afternoon FOMC announcement. The Dow Jones Industrials ^DJI (AMEX: DIA), Standard & Poor's 500 ^GSPC (AMEX: SPY) and Nasdaq ^IXIC (Nasdaq: QQQQ) all increased fractionally in the AM.
Please see our disclosure at Wall Street Greek.
posted by The Greek | 10:55 AM
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