Wednesday, April 29, 2009

GDP Commentary

Largest drop since early 1980s

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) Sphere: Related Content
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