This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

GDP Number Stinks, but Second Quarter Growth Is the Important Thing

NEW YORK (TheStreet) -- The headline number on gross domestic product today looks awful. The details aren't nearly as bad.

The Commerce Department said the economy shrank at a 1% annual rate between January and March, the weakest quarterly performance since early 2011 and much worse than the initial estimate of a 0.1% annualized first-quarter dip reported last month.

But the big reason for the change is a much bigger estimate of the amount by which companies reduced inventories. Instead of subtracting 0.57% from growth, as first believed, the new report says shrinking inventories trimmed 1.62% off of GDP.

Consumer spending was actually a bit better than first thought, rising 3.1%. So was private investment, which fell 1.6% instead of the 2.1% first reported. Federal spending was the same as in the first estimate, while state and local governments spent a little bit less. Net exports, which subtract from GDP, were a little more than expected.

Net it out, and inventories account for the entire change in the headline number.

So what does this mean? Very little. Economists still expect a sharp bounce-back in the second quarter, and blame the weather for the winter weakness. Moody's Analytics says second-quarter data released so far points to a 3.5% growth rate.

And the Federal Reserve has sent clear signals that it saw the economy improving by late April, when the Federal Open Market Committee met.

Consumer spending appears to be on a solid 3% annual growth trajectory, with services spending ramping up to match outlays for new cars, even as housing purchases plateau. With better employment growth expected, there's every reason for this to be sustained. A similar consumer-spending surge in 2010 fizzled out a few quarters later, but there is much less turmoil coming from Washington these days and the unemployment rate is likely to move below 6% this year, in contrast to a 2010 peak of 9.9%.

Businesses aren't spending big, but they're spending. Recent durable goods reports point to much more manufacturing activity in April and May -- with big double-digit year-over-year growth in unfilled orders in a number of industries. Housing sales reports, while not overwhelming, were fairly decent.

And government spending is at least not hurting growth as much as it was. Government spending cuts trimmed growth by 0.4% last year and just 0.15% in the first quarter, the Bureau of Economic Analysis says.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs