Markets rallied on the news that 4 – 6 months ago, GDP was bad, but not quite as bad as previously believed. (So much for the market as a forward looking discounter).
A quick lesson in Commerce data reporting for the newbies out there: We get 3 GDP reports (on I believe the last Thursday) of each month following a quarter’s end: Advance (1/31), Preliminary (2/28) and Final (3/29).
Q4 GDP took a particularly tortured route: the Initial report was surprisingly high, and the individual components clearly conflicted with data already released (we noted this number was a fantasy here). The next revision surprised people to the down side, as it took ~a third off og GDP.
Our original guestimate was for 2 – 2.5%, and this number is consistent with that.
Peter Bookvar notes: "An
upward revision to inventories, a better trade deficit, and Govt spending" as the main factors in the upward revision. Personal spending was left unchanged, and CapEx spending (equipment, software and residential construction) went down. This bodes poorly for further growth, as we have long been told that Business CapEx was ready to take over when the consumer finally falters. That is looking increasingly unlikely.
The WSJ noted:
"Profits are being squeezed by receding demand and rising labor costs.
Retail sales were flat in February after inching 0.1% higher in
January. Business sales fell 0.7% in January and had gone up 1.9% in
the previous 12 months. The Labor Department reported recently that
unit labor costs swelled by 6.6% in the final quarter of 2006, up from
1.1% in the third quarter. Labor costs rose an average 3.2% in 2006,
which had been the sharpest annual increase since 2000 . . .
The biggest component of GDP is consumer spending. Fourth-quarter
spending by consumers rose an unrevised 4.2%, which was above the third
quarter’s 2.8% advance. Consumer spending accounts for the lion’s share
of economic activity — about 70%. It contributed 2.93 percentage
points to GDP in the fourth quarter."
Here’s a quick chart:
Chart courtesy of Barron’s
Fourth-Quarter GDP Revised Up
To 2.5% on Inventory Investment
By JEFF BATER
March 29, 2007 9:41 a.m.