Thursday, April 30, 2009

The Recent GDP Number: The Good, The Bad and the Future

The shock headline number was the drop of 6.3% in GDP for Q1. However, drilling deep into the number suggests that, as I have been pointing out with regard to other recently released data, the worst is over.

Here's NYT's Catherine Rampell who shows how by drlling down a bit the GDP number suggests the worst is probably over:

The areas showing the worst declines were generally lagging indicators — the backward-looking measures that continue to trend downward even after the overall economy has already begun to turn around. But one of the chief leading indicators — those measures that are more predictive of the future of the economy — fared a little better.

Consumer spending and residential investment (basically, housing) are usually considered leading indicators. That means growth in those areas usually precede growth in other areas of demand when an economy is on the path to recovery. While residential investment did fall in the first quarter of this year, consumer expenditures showed a modest uptick of 2.2 percent after declining 4.3 percent the previous quarter.

By contrast, nonresidential investment in structures and equipment and software — usually considered lagging indicators, since companies make adjustments to their building and investing after they already have a sense of how their businesses are doing — showed some of the steepest declines...

many people overemphasize growing unemployment numbers (not part of today’s G.D.P. report, by the way) as a signal for where the economy is headed. But job market conditions usually lag far behind other measures of the business cycle, since companies often make messy, uncomfortable firing and hiring decisions after they’ve dealt with other types of cutbacks and expenses.

1 comment:

  1. You'll really be optimistic after hearing this: If you really drill into that report, you'll see that the first quarter GDP fell only 6.1%, not the 6.3% you report.