Monday, August 01, 2011

Friday's GDP Numbers

The much-anticipated US government's formal news release of GDP for Q2 and revised Q1 came with disappointing data:

"Real gross domestic product -- the output of goods and services produced by labor and property

located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent."

And on prices and spending,
"The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.2 percent in the second quarter, compared with an increase of 4.0 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 2.6 percent in the second quarter, compared with an increase of 2.4 percent in the first.

Real personal consumption expenditures increased 0.1 percent in the second quarter, compared with an increase of 2.1 percent in the first. Durable goods decreased 4.4 percent, in contrast to an increase of 11.7 percent. Nondurable goods increased 0.1 percent, compared with an increase of 1.6 percent. Services increased 0.8 percent, the same increase as in the first."

Over on Bloomberg television, Tom Keene said he thought the Q1 revision was a typo when he first saw it. The GDP data provided an explanation and, probably, a good reason for the fifth S&P500 down day last week. From 1345.02 the prior Friday to 1292 and change on the last trading day of July, the equity index reflected ongoing US broad economic difficulties.

Recall, if you will, the administration's robust 4% annual GDP wishes-as-forecast. We're a long, long way from that.

While the government debt limit and spending cut drama continues to play out, one would be forgiven for seeing the GDP, price and weakened Q2 spending data as more lasting, deeper reason to doubt whether the US really ever exited from the recession begun in 2007.

Still, this need not mean a plunging S&P500. The larger global US companies comprising the index continue, in the short run, to profit from economic growth elsewhere in the world, with more favorable business conditions abroad than at home.

Not that even this will last indefinitely. But until deleveraging makes more progress in the form of reduced expecatations of government pensions and benefits globally, and subsequent higher personal savings rates and lower consumption, US equities may remain attractive.

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