"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Thursday, May 26, 2011

Q1 2011 GDP, First Revision

We've got an economic one-two punch coming down the track this morning.  We open up with Gross Domestic Product, the "other fist of steel" to first time jobless claim's "one fist of iron"[1].  And Gross Domestic Product is truly a fist of steel for the market.
GDP is, of course, the sum total of private domestic consumption plus gross private domestic investment plus government spending plus the current trade balance.  It's the scorecard used to determine the health of the US economy, and it dominates everything else in its path because it is everything else in its path.  There is no single better estimate of the economic health of the country.
Last month, the advance estimate for Q1 GDP came out at 1.8% growth, missing analyst expectations by 20 bps.  The price index - a measure of the rate of change in the cost of a fixed basket of goods and services, which is a fancy way of saying a measure of inflation - increased 3.8%, which missed expectations by 160 bps.  The core price index came in at a 2.2% increase, so even without food and energy costs prices went way up.
Of course, that was just the advance estimate.  This month we're getting the first revision, and then next month we'll get the final for real revision, and the Econoday-surveyed analysts are feeling remarkably positive about the results.  They're calling for GDP to be revised upwards to 2.1%, and for the GDP price index to be revised downwards to 1.9%[2].
So, does the Bureau of Economic Analysis disappoint?  Let's go have a look at the Q1 second estimate report and find out.  Real Gross Domestic Product increased at an annual rate of 1.8% in Q1 - unchanged from the advance figures and missing expectations by 30 bps.  The GDP price index increased at a rate of 3.8% as well, also unchanged from the advance figures and substantially missing expectations.  Core GDP price index increased by 2.2%, also unchanged.
So, although things didn't actually get any worse than originally estimated, we've badly missed estimates.  That sound you hear.  That is the sound of the GDP's fist of steel crushing the market.
Unless I'm wrong, of course.
[1]  If you don't get the reference, go listen to Tennessee Ernie Ford sing Sixteen Tons, and obtain wisdom.
[2]  If you've clicked on the Econoday link, I just want you to know that I have no idea why they're reporting the Q1 advance GDP price index at 1.9%.  The BEA report from last month was pretty explicit about it being 3.8%, with a 2.2% core.

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