Economy in U.S. Shrank at 6.1% Rate in First Quarter

inventories down huge makes some think future inventory data will be much better + consumer spending doubled consensus estimate and that is making people feel like consumers are healthy and spending again. As if that is sustainable. They are laying the foundation of hope/recovery. If it doesnt come, watch out. Again, I think markets got severity of this problem right so far, but not duration of it

There are some good charts here showing the details:

http://www.ritholtz.com/blog/2009/04/gdp-down-61/

The things to keep an eye on, I would think, other than personal consumption expenditures, are non-residential investments and governmental (state and local) spending.

ud, and if it does?

Consumer spending of gas/medical is driving that metric, not furniture, clothing, or cars. Most assets remain illiquid and personal wealth is down while taxes are up.

5mm jobs will be lost this year with those getting jobs are at a lower pay scale than previous.

This is a 5 year cycle with 3 more to go.

some good analysis of the gdp numbers, from David Rosenberg, via zero hedge:

GDP fell 6.1% q/q annualized in 1Q well below consensus expectation of -4.6% and even below BAS ML forecast of down 5.5%. All investment-related segments of the economy showed significant pullback reflecting the global recession and the ongoing credit crunch that is making it difficult to complete projects. Commercial construction fell 44.2% in 1Q, which is the largest quarterly decline ever recorded going back to the late 1940s. The BEA noted significant declines in energy related drilling projects as well as sharp downturns in commercial, healthcare, power and communication building. Capex investment fell 33.8%, the 5th quarterly decline in a row and the deepest decline to date. The residential building sector fared just as poorly, down 38% in 1Q continuing a string of declines that stretch back to early 2006, but again the 1Q drop was the deepest decline so far in the cycle. Inventories were cut by $103.7B in 1Q and took 2.8ppt from top line growth, however this was far short of our expectations and combined with the weaker than expected final sales pace suggests businesses will need to slash far more inventories in the months to come.

Consumers gain

The one bright note in the report was the consumer which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q however, suggest that this positive pace will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q -- a full percentage point higher than in 4Q. On the price side, the GDP price index increased by 2.9%, above consensus but in line with BAS ML expectations. The more important consumer price index fell by 1.0% as expected and the core PCE advanced by an anemic 1.5% q/q annualized and the yearly pace slowed to a 4-year low of 1.8%.

(Compliments of David Rosenberg, the only person who has not signed a lifetime cheerleading contract with the US Gov't)

and apt_boy, i started a thread yesterday that showed that medical is starting to shrink. pce rose from very low numbers, and savings increased, in large part due to tax refunds and lower gas prices. 14,000 people DAILY are losing medical insurance, and one in eight jobs in this country are tied to the health care industry in some way.

in the important economic news link, I posted the most recent Gallup Poll results regarding consumer spending/saving attitudes. the recent shift from spending to saving as a preference is notable.

aboutready, could you possibly give just the slightest hint of what is it you for a living?

stakan - there are a lot of things to get positive about that should fuel a surprising bear rally in equities. We are up what, 30% so far? It can go another 10-15% easily I think. Short squeezes alone will power it. My point is that I dont think equities are trading on fundamentals, rather, they are trading on emotion, quant trades, short squeezes, other program trades etc.., less so now that VIX has come down big time. Credit is much tighter, ZIRP policy for a while now, every fed facility you can think of, bailouts, rescues, rate of deterioration is slowing, etc..lots of news that can power a bear rally. Even bad news is reacted to positively, as investors think stocks are priced in. But with each rally, the equity gets that much more expensive and expectations rise with it. Thats when good news comes out and stock falls.

My point, combine some trading theory with fundamentals. Is everything all better again? I just dont think so. Therefore, I think the markets are pricing out the DURATION element of this deep recession, and I think that rationale will lead to the next wave when the market is ready. For market to be ready many things have to happen, including shorts getting murdered and bailing out of positions and long side getting more and more overcrowded.

westelle, that's the beauty (or not) of it. i don't do anything. i'm a stay-at-home mom who goes to the gym once or twice a day, reads two or three books a week, does some volunteering, does my own housework (not very well, I must confess, and with some help from the husband), cooks four or five nights a week, pays the bills and makes all real estate, travel, tax and investment decisions, shops for groceries and does other errands, helps one child (but not that much) with her homework, takes her to her doctor appointments and goes to her events, is fairly active at her school. I have a husband who works very long hours (less these day, go recession), although with a fair amount of flexibility so he's usually home for my meals. If I had a full-time job our lives would be fairly hard to manage, bordering on impossible. meaningful part-time work is difficult to find under the best of times for someone without an advanced degree. I am very efficient and don't need that much sleep.

I don't shop that much, I don't get my nails done often, etc. Somehow I have the time for all this. Too much information, I know.

'i don't do anything."

I love it.

UD, this rally has had some surprisingly strong legs, though. 6 banks needing capital and GDP quite a bit worse than expected. Go market!! This feels eerily like when we ran it up last time.

consumer spending rose 2.2% in the last quarter the most in 2 years... not all bad news you doom and gloomers.

petrfitz, I'm copying from my own post, sad.

The one bright note in the report was the consumer which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q however, suggest that this positive pace will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q -- a full percentage point higher than in 4Q.

UD - that's a brilliant argument you've put together - if stocks go up, you were right. if stocks go down, you were right. can't lose (can't win either)

aboutready, I though so. I asked because your style shows lack of forced communication, i.e. having to communicate with people you're not friendly with, such as at work. In short, copious posting on ALL topics with self-conviction of knowing it ALL at ALL times... Questioning your expertise sometimes is more convincing than typing away 24/7.
This is really boring. But then again, I'm here... for another 30 min.

your brilliant

aboutready, when someone asks you what you do, you really ought to deliver the old standard line "Nothing ... but I do it *very* well."

ud, I happen to be a disbeliever in the market being the unquestionable indicator of economy. With shoring, speculation, day trading, insider trading et al, I saw the same companies with the same fundamentals flying and crashing within 2 days of trades.

how about this. Watch the hell out for another nasty wave down, that breaks through the old lows right at the point that hope has built in again. How many economists/analysts/experts are saying this? One more wave down and then the buying opportunity of a lifetime in stocks. What sparks it, I dont know. Dow 5,000, entirely possible on one last fear based, margin call triggered, HF gates opening, selloff.

You want to put money to work right now, here, today, after the 30% rally from latest bottom, good luck! Grab the last 5-10% of this move. I wish you the best. Im paring down longs and adding to shorts. Let the rally continue, Ill increase shorts to position for what I believe to be one more adjustment down. Specific enough?

If it doesnt happen, if Im wrong, if S&P rises to 1,100 on this current rally, Ill kneel before zod.

Thats my thinking, whats yours?

westelle, thank you for your opinion. actually i have a fair amount of interaction. one of the nice things about the recession is that people seem to have more time for their social lives. and, as i said, i'm fairly active in my daughter's school.

oh, and by the way, i worked in large law firms for ten years. i've communicated quite frequently with people i don't like. i'm doing so right now.

alanhart, thanks, you're probably right, but I was just having a bit of fun.

UD, and how do you think the people will feel when they see their 401ks and pensions destroyed a second time?

aboutready, you forgot to end the sentence before "alanhart" with a colon in your last post.

Just kidding. I hope.

And your "what I do" post *was* fun ... I just like promulgating the canned answer.

alanhart, consider my post corrected. i like your style.

westelle - totally agree

well, the saying goes something like this: "bear markets begin on pessimism, climb on skepticism, grow on optimism, and top on euphoria"

feels an awful lot like we're smack dab in the middle of those first two parts. I think march was the 2nd leg down that you are looking for - it shook out a lot of people that had nervously held on through October. Still tons of skepticism out there, lots of fuel for this market to move up considerably.

I don't know who Zod is, and I don't bow down before other people, or idols, or whatever, but I think the S&P is likely to reach 1100 w/in a year, and the Dow won't hit 5000 - it won't even hit 6500.

perfect, we have a trade. General Zod was leader of a trio of enemies of Superman in Superman 1 - he ordered Superman to kneel before him, in defeat. Superman says no way, I dont kneel to anyone. Either do I, it was just a reference to that scene.

http://superherouniverse.com/wiki/images/5/57/GeneralZodForPresident20084.jpg

Anyway, good stuff. Lets revist this say in 6 months or so?

I predict perhaps another 7%-10% max on this latest rally, and put ourselves in between steps 3 + 4 in your scenario. Closer to end of 3 perhaps, and the beginning of 4. Shorts get murdered, fierceness of moves escalate, and euphoria sets in.

I bet S&P falls to 600 on next wave down, perhaps lower if fear is real bad, margin calls kick in, and HF redemption requests that were delayed from last 6-9 months + new ones overflow markets. I say that by years end, the DOW does in fact break its 6500 lows from this cycle.

Lets revisit in 6-8 months.

yes - we shall see

bookmarked. Can I make another trade with you? Gold? Where does it end 2009?

I have no idea - gold is one I stay away from - too many technicals and I'm not close enough to understand them. and too many weirdo survivalist tin-hatters involved - not to mention central bankers - both make me squeamish

ha

Oh man, I really try to stay out of these discussions, but I just can't resist on this one:

aboutready: "i started a thread yesterday that showed that medical is starting to shrink. pce rose from very low numbers, and savings increased, in large part due to tax refunds and lower gas prices. 14,000 people DAILY are losing medical insurance, and one in eight jobs in this country are tied to the health care industry in some way."

Medical expenses are starting to shrink? In what country?

Medical expenses as a % of personal consumption expenditure have reached an ALL-TIME high of about 21.9% in 1Q09! By what measure is medical expense starting to shrink?

triplep, i misquoted myself a bit. hiring in the industry has been flat, and hospitals are starting to see significant layoffs. people without insurance are postponing procedures, not taking medicines, etc. elective procedures which are highly profitable are down greatly. i agree my post in this thread was misleading. it's not shrinking, it's growth has contracted to nothing and is showing signs of declining.

From my original post:

In the following report the gov't notes that despite approximately 14,000 people losing medical insurance DAILY, they expect an increase in total amounts spent for 2009 in health care:

http://www.womenshealth.gov/news/English/624419.htm

I'm not sure their numbers are accurate, however, as hiring has been flat recently in health care and layoffs are increasing.

http://www.aha.org/aha/press-release/2009/090427-pr-economy.html

I think they may not have accounted for the fact that so many of the laid off are middle to upper class. This affects both eligibility for Medicaid and the types of medical treatment reduced.

Did you know that one in every eight Americans is employed in a health-care related job (includes dependent care)?

aboutready...with all of your posts, did you have time to go to the gym twice today?

Only been once so far, went at 4:30. Also have gotten in a couple hours worth of errands and three of volunteer work (meeting). no book reading so far today, though.

OK, did some food preparation and housework, back to work.

Take a look at the charts in this piece at zero hedge. Make sure you scroll down to disposable personal income and the personal consumption expenditures. You'll notice a huge spike in DPI, despite increasing unemployment and declining hours worked weekly. Most likely that is the result of tax refunds, which also fueled the savings increase (paying off debt counts as savings, btw).

http://zerohedge.blogspot.com/2009/04/late-day-chartology.html

The flaw in all the doom and gloomers arguments on this board is that you guys think that we need to fix the economy, banks, and regulations for the markets to go back up. The stock market and real estate market is not based on logic, or real valuations. They are both based on speculation, lack of knowledge and passion. It is only a matter of time before the masses are fooled again, markets rise, and then the bankers will rape and pillage the life savings of americans again. It is a cycle. It wont be fixed. The markets will go back up soon. Not based on being fixed or earnings or valuations. It will be based on the next wall street scam. Just get out before the next one daflates.

once again.. you are a moron... petridish. Even optimists and the like know that the financial system needs to be fixed. Why don't you just draw some pictures while i take you to school.

All financial assets are based upon cash flow. i give you $100, I get $10 interest and principal back in 1 yr. The reason why this whole shit went to pot is b/c getting the principal back was an imaginary # plugged into by a math quant who's never looked into a counterparty's eyes and could ascertain that dufus' ability to pay back the money. The reason we are in this mess is that the natural financial breaks in the system was "de-regulated" away. If AIG was just an insurance company and the regs required these unregulated derivatives crap to be on the company's balance sheet, we'd just be doing a ho-hum mild inventory corrected recession and not the complete once in a 100 yr NYC RE depression and the wasted production capacity of the US, no the entire world.

So how was the RPIE filing this year? and how many tenants asked to re-neg their rents?

aboutready what's cooking for dinner... I'm making a nice grilled steak w/ chimichurri sauce... can't go wrong w/ parley, garlic and olive oil.

One other point I'd like to make about this bull-run.... the "market" is hoping that the worst is over... but me thinkz the GNP and unemployment will continue to stutter step with a big leg down when fall/x-mas selling season does not materialize. The greatest bubble in assets in 100 yrs doesn't get cleaned up in 12 months....

"The stock market and real estate market is not based on logic, or real valuations. They are both based on speculation, lack of knowledge and passion."

And what do you see the Manhattan "emotion" being for buying residential Real Estate in the near to mid-term future? What are you hearing at cocktail parties?

I'll tell something I've been saying to a few colleagues over the past month or so: one of the biggest retail growth areas in Manhattan over the past few years has been in bank branches. A lot of the banks who opened these branches don't exist anymore. Do you think Chase is going to convert all those new Wamu branches into Chase branches? When Chase had already saturated the market with about as many branches as it could stand? Personally, i say "no" (but I'm not familiar with the exact deal structure so I'm not sure if Chase took over all the obligations of Wamu or not. In any case, I expect to see A LOT of closed bank branches in Manhattan in the reasonably near future. If poeple walk 5 blocks and see as many boarded up BANKS, what effect do you think that will have on consumer confidence, at least as it applies to buying RE in NYC?

w67thstreet - in the 70's even optimists and the like knew that our petroleum based dependeny needed to be fixed. Was it? or was it washed over and ignored.

Our society is not based on fixing issues. It is based on glossing over them, hiding them, and creating smoke and mirrors until it is too later.

Are you saying that Wall Street will be regulated strictly like it should? Bankers will have their compensation limited? mortgage documentation will be clear and able for the layman to understand? that wall street will stop hiring physicists to build complex models that regulators and the banks themselves cant understand? that wall street and banks will do business with the intent to not overly benefit themselves but benefit the individual investor?

that is what needs to be done among many other things to fix the system. Are you saying that all these things (plus many other hurtful changes) are going to be implemented quickly? Who is the idiot? You for believing all the massive wrongs in the financial system will be corrected or me who believes a majority of the wrongs wont be righted? HUH?

30yrs - all those bank branches will become palm readers and weed dealers selling product for cash. maybe a few new bars and rock rooms will open up. landlords will rent short term to coffee shops and cafe's until the rents go back up.

so it may not be bad for lifestyle if those banks close.

Doing sauteed shrimp with garlic, ginger and peppers.

It's weird. It's as if people think we bears ENJOY the destruction of trillions of dollars. With increased taxes, and decreased profits (law firms are having the TOUGHEST time getting the clients to pay, particularly the banks), we'll see about a 25% cut in pay this year. I'd LOVE a turnaround. But a real one, not a reinflation that will set us up for an even worse crash in a couple of years. You just have to wonder what the U6 at 20% will do to us.

oh damn. steak and shrimp....

here we're having turkey meatloaf with feta cheese and calamta olives and roasted asparagus. watching our calories and trying to be heart healthy.

would much prefer the steak. the shrimp sounds damn good too.

petridish.. I like you... 70's was a lost opportunity... we should have had a national energy program as we are trying to now... GO BAMA.

Actually our society did fix alot of the ills after the stock market crash of 29', FDIC, Glass-Steagall, Registering broker-dealers etc.... what the gov't has lost sight of is that it is not a cheerleader for any group in the US (i.e. bankers, RE brokers, copyright advocates, drug companies, cable operators etc), but should look to maximize the benefits to everyone in society. And I agree w/ you the current TARP and re-flating of RE etc is just the complete opposite of where it needs to go, but they'll learn soon enough it ain't going to work.

Yes, my hope is that a mortgage is a commitment to pay back and not just a leverage for a flipper and the finance industry will no longer be able to have off balance sheet items and there are clear capital requirements for derivatives... .and why in the world do we allow mortgages on 2nd homes and sailboats is beyond my comprehension, but I'm sure the boating and RE lobby had something to do with it. It's funny how you think I am a doom and gloomer, but I believe in the US system and its ability to self correct in the long run....

Cheers, here to more thoughtful regulations!

Vote with you

..... on needing more regulations the next go around :)

petrfitz, keep hope alive. things rarely progress smoothly, or in a linear fashion. it's liable to be ugly, and it won't come easily, but i'm with w67th here. eventually good may come out of this, kicking and screaming though the opposition will be. too bad, though, that it had to come to this for the recognition that a wee bit of prudence might be, well, prudent.

CC that sounds good... we should write a book called SE meals... meals that can be prepped while "SEing"

Oh if you get a lean cut of meat, it shouldn't be that bad for you :) and garlic is medicinal :)

Hey, perfitz, how come you never responded to the posts about Lake Las Vegas going bankrupt?

I was grilling up a steak but while cooking I snorted too much now I'm not hungry......just kidding....the good old days.I've been called Dr Doom many times and have been accused of missing the boat and being jealous. But my 401 has taken a nice hit and my rental properties and inheritance are taking nice hits down......but then again I never speculated, leveraged or borrowed, debty free and refused to buy during the boom and madness.

so McHale, you never flew too high, but you'll not fly too low? not a bad way to live.

printer - you still around these parts? dont forget about our little bet