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It’s the economy, stupid

Posted By Peter Boockvar On July 29, 2011 @ 10:48 am In MacroNotes | Comments Disabled

The US economy grew a weaker than expected 1.3% vs the est of 1.8% AND Q4 GDP was revised to a gain of only .4% from the last reading of 1.9%. We thus grew less than expected off a smaller than expected baseline. The price deflator rose 2.3%, .3% more than expected, thus nominal GDP rose by 3.6%, vs the forecasted gain of 3.8%. The main drag was Personal Consumption which grew only .1%, the weakest since Q4 ’09 and was well below the est of a rise of .8%. This was mostly due to a drop in spending on auto’s/parts which we can partially attribute to the Japanese disaster. Government spending also was a drag, falling 1.1%, led by state and local. The positives were investment in equipment and software, non residential and residential construction. Trade also contributed to growth. Taking out the influence of inventories, Real Final Sales rose 1.1% after an unchanged reading in Q4. While headline PCE fell to 3.1% from 3.9%, the core rate rose 2.1% from 1.6%, the highest since Q4 ’09. Bottom line, the US economy grinded to an almost halt over the past 2 quarters, growing only .4% on a real basis from Q4 ’10 to Q2 and while Japan had an influence, it is not even close to explaining this weakness, especially at this point of the economic cycle. The market reaction in both equities and bonds to the number again points to the concerns about economic growth, much more so than political games of chicken.


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