Q1 ’07 GDP

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GDP has four major components:
Personal consumption expenditures (71%)
Fixed investment (housing, business construction, property/plant/equipment, and inventories) (16%)
Government outlays (federal and state) (18%)
Net exports (goods and services) (-5%)

In February, seven of the 14 categories that comprise personal consumption expenditures, representing 44% of the dollar value, were down compared to January.
Fixed investment was down in Q4 ’06 compared to Q3 ’06.

I projected March personal consumption expenditures and averaged such with the January and February reported data; and I extrapolated fixed investment, government outlays, and net exports from Q4 ‘06. When I do such, I arrive at an estimate for Q1 ’07 GDP growth of 1.0%.

This week, we get important data releases for March: retail sales, industrial production, and housing starts/building permits.

Next week, we get March personal consumption expenditures and the initial estimate of Q1 ’07 GDP.

This is a fool’s game, but I’ll proceed, anyway: given the series of negative economic news stories from the New York Times over the last two weeks; given the potential for weak economic news this week and next; given the potential for a GDP growth figure in the low 1s (e.g., 1.0%) (analyst estimates range from 1.8-2.6%); given the surprising awareness in the foreign press of the precarious/weak U.S. economy; I’d say that the market has the potential to be spooked over these next two weeks, yielding the expected-by-some (e.g., me) correction.

I’ve been wrong before on this timing stuff. But, this is my read of the data and sentiment. We’ll see!

[(former)FormerSanDiegan]

I’m still betting around 2% for Q1 GDP. It has been hovering there for the last two quarters, and I’m betting on the continued trend to stay above 1%. I’ll eventually be wrong, but probably not this quarter (maybe by 3Q 2007).

BTW, news just out on March spending … up 0.7% (forecast to be 0.4%) and Feb consumer spending was revised up to 0.5% (originally reported as a 0.1% decline).
http://money.cnn.com/2007/04/16/news/economy/retailsales/index.htm?postversion=2007041609

[HereWeGo]

The market today seems to differ a smidge with your analysis, jg.

[Anonymous]

FSD, the 0.7% was nominal growth. We’ll see what CPI is tomorrow. Some are expecting it to come in high, even 0.7%, due to strong increases in gas and food prices in March. If CPI does come in high, that will mean that March retail sales, in real terms, were flat. Remember, GDP is reported in real terms.

My wife is going to kill me, with gold about to bust through $700 again (we got out at $635-640, in anticipation that the market would crash faster than gold would rise; so far, wrong I am!).

[(former)FormerSanDiegan]

jg –
IMO the actual number for consumer spending is not as important as the fact that consumer spending exceeded expectations by 75% and that Feb numbers were revised to the positive side instead of a decline.

Now, as for your gold follies… short-term timing is tough. You are brave to try. The problem is that you may be generally correct in gauging the economy’s direction, but predicting the net outcome of all the players in the markets and their responses over the short-term is dicey.

[Happy renter]

jg,

“Wall Street began the week with a strong start Monday as better-than-expected profits at Citigroup Inc. and a healthy increase in consumer spending renewed investors’ optimism about the economy. The Dow Jones industrials rose nearly 100 points.”

http://biz.yahoo.com/ap/070416/wall_street.html?.v=25

It’s my own opinion, shorting is not that ideal for long term. Stock market tends to go up in the long term. So, the chance for the stock to go down is lower than go up. For shorting position, I monitor the market closely with high liquidity & flexibility. And I would not put all my $ on shorting. I have already sold my RE ultra short fund after I took some profit. I always remember my investment professor told us that buy low, sell high! Both RE and finance markets have already declined 20-30% this year. Without more bad news & data, both markets are bouncing back now. They may decline if there are bad news and data being released.

Thank for sharing your GDP data. I would use the data as reference, but not counting on it 100%. If the data and market have 100% co-relation, we would not have this huge housing bubble now. Data is a good reference, but I would also look over it to everything else, like news, Fed policy, earning reports, regulations and even the whole world that may affect the stock market as well. Yesterday, the major Asian stock markets went up over 2%. Don’t be afraid the value of your portfolio goes down. We all learn from experience.

Hope you will do well!

Good Luck!

[Chris Scoreboard Johnston]

Chris Johnston

I think the market will make a pretty strong upward move into the beginning of August. We are short term very overbought, so a small correction could happen at any time. If we happen to get even a small rally in bonds, we will be off to the races I think. If bonds continue weak, the equity rally will be more moderate.

Just my opinion, but I put my money where my mouth is. The commercials are heavily long, and big selloffs do not usually happen when this is the case. The only thing that would make me change this view is if todays upward gap is filled quickly.

[Anonymous]

FSD, I graciously accept your curtsey/genuflection:
http://biz.yahoo.com/ap/070427/economy.html?.v=2

Chris, you’ve been right on the timing of the market, to-date; but, we’ll see if, as the bad news continues to pile up, whether things will correct sooner (over the next month or two) or later (August).

[Chris Scoreboard Johnston]

Chris Johnston

Neither one of us really knows what will happen. I think you are more bearish than I am at the moment. This year we are following the seasonal pattern almost to a “T.” As a result, I will continue to weight that heavily. Keep in mind that I am a fairly short term trader. I rarely hold for more than 6 months with stocks, and much shorter than that in futures. I am expecting a substantial downward move in stocks before years end, which will hopefully set up another Oct/Nov buy. However, I am expecting it to begin from higher levels.

If we get a big blow off here like it appears we are, I may exit my longs ahead of the August time frame. Also, if bonds were to get really weak, that could also cause me to exit sooner. Third, a shift from long to short by the commercials, could also cause me to re-evaluate. Without any of those two things happening, I will ride this. My feeling is that you simply cannot afford to miss moves this powerful. I trade based on my trading systems, not my economic viewpoint.

What bad news, most companies are knocking it out of the park with earnings?

[(former)FormerSanDiegan]

Super, but what about the beer !

“FSD, I graciously accept your curtsey/genuflection”

A small price to pay for a beer.

I thought you expected less than 1% …

http://piggington.com/we_meant_to_say_2_2?page=1

Submitted by jg on February 15, 2007 – 10:10pm.
FSD, I wager you a beer on Q1 GDP: I say it’s coming in below 1.0%. Consumer spending for Jan. came in at 0% growth, and with the spike in gasoline prices (man, did they jump quickly over these last two days), folks are going to be in no mood to spend like mad.

Big spike upward in initial unemployment claims, today. Surprisingly good NY state manufacturing data offset by surprisingly bad Philadelpha manufacturing data.

I’m guessing that the housing starts and building permits for January, announced tomorrow, won’t be pretty.

Cheap bets are fun (but I’ve been on the losing for three straight now; today, I had to treat a guy to a cheap lunch for going with my heart, and not my mind, and the Bears).

[(former)FormerSanDiegan]

All this genuflection and beer talk reminds me of one of my favorite T-shirt quotes :

“… because without beer, things do not seem to go as well …” – Diary of Brother Epp, Capuchin monastery, Munjor, KS, 1902

http://store.freestatebrewing.com/frstorteesh.html

[HereWeGo]

It will be interesting to see how Q1 GDP is revised in the coming months. This number seems incoherent with the surging earnings reports.

[LA_Renter]

Keep in mind the surging earnings are not coming from the US. They are are coming from US multi-national corporations with strong overseas growth. It is my contention that the impact of the housing slump is being totally underestimated. The 1.3% GDP below an estimate of 1.8 is due to the housing slump. Of course this will be revised, Right now I am of the opinion we will see GDP well below the Fed forecast this year.

[Anonymous]

As you curtsey, I hand you a beer, FSD.

My Feb. post was shoot from the hip/lip and gut-based; my forecast of two weeks ago was based on good number crunching.

S&P predicts that Q1 earnings will come in at growth of 4%. Folks with good news report early (beginning last week); folks with bad news report later. Just wait for all to report, then add up the data. Patience!

Pattern recognition exercise:
Q4 06, 2.6%
Q1 07, 1.3%
Q2 07, 0%?

Reminder — Q4 06 GDP growth initially came in at 3.5%, and was ultimately revised down to 2.6%.

Given the continued slowing in housing sales and construction, and the slowing MEW, it will be interesting to see the April retail sales reports (autos on Tuesday, others mid-month) and April personal consumption (end of May).

[HereWeGo]

The export number is key, as exports add directly to GDP. Many companies with surging earnings are reporting that exports are central to those earnings. Moreover, if imports do in fact become a little pricier, and American buy a few less imports, that would also add to GDP.

I suspect that, based on all current earnings reports, the GDP number will rise significantly upon revision.

Oh, to make jg’s “pattern recognition” a little trickier, note the 1.8% GDP number from Q3 ’06, and keep in mind not only that the 1.3% number is an intial estimate, but that the Q4 number went from an initial estimate of 3.5, to a revised estimate of 2.2, to a final value of 2.6.

There’s no doubt housing and debt burden are major drags on the US economy. Nonetheless, the world economy continues to grow at 4-5%. Two very powerful phenomena pulling in different directions, but which will ultimately prove stronger? I once believed housing would pull the US into a recession (and worse,) but that’s a terribly US-centric view. I’m no longer convinced a recession is inevitable (although housing is likely in for a very difficult run.)

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