Markets rallied yesterday morning on the Final GDP data, revised to 2.5% – up from 2.2% Preliminary report (2/28) but down from the initial Advance (1/31) read of 3.5%. But the indices gave up those gains and then some as the day wore on. A little "window dressing" into quarter’s end closed the markets in the green by day’s end.
Was the GDP "improvement" really all that good? A quick look at the details suggests otherwise.
The 0.3% improvement was two parts inventory build (primarily autos), one part GDP deflator "adjustment." Pretax corporate profits decreased
0.3% in the fourth quarter of 2006, the first quarterly decline since
the third quarter 2005.
CapEx spending remains punk, as corporate management is cutting back on all manners of spending to avoid eating into profits — short term thinking at its finest. Nonresidential investment fell 3.1% for Q4, worse than the initially reported decline of 2.4%. But the big miss was Equipment and software spending — down 4.8% (vs initial -3.2%). This is consistent with the series of weak durable-goods reports we hav sen the past few months.
Signs of economic strength? Hardly.
The overall trend of GDP, corporate profits, durable goods and CapEX spending is downward. Housing, Autos, and Manufacturing are already in a recession (I have a car coming off lease May 1st, and I plan on waiting some time to see what sort of incentives the auto industry will be throwing my way as inventory continues to build). I don’t see how these issues get any better any time soon.
Goldilocks has left the building . . .
U.S. GDP growth hobbled by stocks of unsold goods
Rising inventories, give year-end lift but spending curb suggests slowdown
Reuters Mar 30, 2007 04:30 AM