GDP = 1.3%

By now, you know the GDP came in way below consensus. Given recent revision history, its very likely this will not be the final number.

The economy slowed to its weakest pace of gains in 4 years, when GDP was 1.2% during Q1 2003.

Housing gets most of the blame (duh), but do not ignore the accelerating inflation factor as a key element. Most traders realize the Fed is watching that component closely; Hence, why you are not hearing the usual "Rate Cut" chants from the cheap seats. PCE rose 3.4% (it decreased 1.0% Q4) Even the nonsensival core PCE  (ex food and energy) was plus 2.2% (following 1.8% Q4).

International trade, Business Capex spending, Inventory growth, and decreased government spending all weighed on the economy to produce that 1.3% number.

The one bright spot:  Durable goods. Plus 7.3% in Q1 follows +4.4% in Q4. Pretty much everything else was punk.

Nice table via the WSJ

GDP components and their impact on growth.
GDP Component Added (subtracted)
from GDP
Residential fixed investment (0.97)
International trade (0.52)
Inventories (0.30)
Consumer spending 2.66
Business spending 0.21
Government spending 0.18
Source: WSJ, Commerce Department

U.S. Economic Growth Is Slowest In 4 Years Amid Housing Slump
WSJ, April 27, 2007 9:58

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  1. wunsacon commented on Apr 27

    Consumers are still spending like crazy? That leg looks solid on the outside but it’s rotting on the inside.

  2. Paul Jones commented on Apr 27

    For me, The Big Picture continues to be the divergence between equities and the man on the street. People in trouble turn to the existing government first, or try to create their own government second. Neither is good for long-term growth. Unfortunately, this generation of business leaders seems unlikely to pull off voluntary changes to reduce the contrast in the system.

  3. Robert Cote commented on Apr 27

    Headline we won’t read tomorrow:

    “Blowout Increase in Consumer Debt Averts Recession”

  4. Josh commented on Apr 27

    Thanks to aerospace in durable goods contributions…otherwise its a different picture.

    For all the amature economists, Barry used to have a book featured on the sidebar called “the secrets of economic indicators” by Baumohl. This explains a lot and put more figures into perspective than just the headline figure that pops up on tv.

    I highly recommend it. I first got it at the library, then had to buy it as a constant reference.

  5. Sponge Todd Square Pants commented on Apr 27

    How much of this consumer spending is coming from consumers taking on more debt.?

    If they are already in debt up to their eyeballs why should we expect them to stop spending? I see them getting into debt up to their hairline.

  6. Caravaggio commented on Apr 27

    Low growth and evidence of price pressures. It’s the worst of both worlds. And yet the equity market has barely nudged.

  7. John commented on Apr 27

    What Sponge Todd said.

  8. sccofer commented on Apr 27

    I would have bet on a big drop in the market with a GDP of 1.3% today, good thing I am not a betting man…Trade the trend baby…But I sense the bottom may be falling out any day now???

  9. VJ commented on Apr 27

    Simple answers to simple questions:

    Is Stagflation still Stagflation even if it is not (Yet) at previous levels ?

    Why yes, Stagflation is Stagflation, whether it is Mini or Midi or Maxi, it’s just a matter of degree.

  10. Ross commented on Apr 27

    GDP is a distorted measure. It measures activity…good or bad. Hailstorms increase GDP as much as building a house…opps they don’t build em anymore.
    We used to measure GNP which included international capital flows usually into the U.S.. If we were still measuring GNP it would have been a negative number. Get rid of one distortion and up pops another. Last time we had a measurable recession we didn’t ‘know about it’ till it was over. Samo samo this time…

  11. S commented on Apr 27

    Kevin Tuttle at Minyanville penned an excellent piece on where the DJIA is currently, and where its been over the past century, from a technical analysis perspective.

    It’s long, but a very good read.

  12. Estragon commented on Apr 27

    Sponge Todd – “How much of this consumer spending is coming from consumers taking on more debt.?”

    Interesting question. My thesis is consumer debt creation is peaking out and being replaced by corporate sector debt creation.

    Consumer debt from

    06q1– 2.1
    06q2– 6.1
    06q3– 5.4
    06q4– 4.5
    07Jan- 3.3
    07Feb- 1.5

    I expect March will up over Feb, but the trend appears to be slowing. This suggests spending isn’t coming from increasing consumer debt. More likely from big yearend bonuses, tax refunds, etc. This is consistent with the general pattern in retail sales (lower end stagnant, high end still good).

  13. johntron commented on Apr 27

    If anyone has extra freetime on their hands, what would have GDP growth been since 2003 if the Iraq war costs are backed out proforma?

  14. TAM Money and Finance commented on Apr 27

    Economy Slumps, Stagflation Watch Begins

    The faltering housing market placed its stamp on the overall economy with the news that GDP slowed to 1.3% growth in the first quarter of 2007. The negative effects of the housing slump are understandable. What should concern is the possibility of stag…

  15. levi civita commented on Apr 27

    Does anyone know if military hardware is counted as “durable goods.”

  16. mDave commented on Apr 27

    Does anybody else notice that the market is disconnected from reality? Housing down and pulling everything with it…the market goes up. Consumers spending to debt levels that can’t be sustained..the market goes up. You name anything that you would think effect it and the market still goes up. Just a thought.

  17. super-anon commented on Apr 27

    Is Stagflation still Stagflation even if it is not (Yet) at previous levels ?

    Why yes, Stagflation is Stagflation, whether it is Mini or Midi or Maxi, it’s just a matter of degree.

    The inflation we have today (which comes from excessive borrowing) couldn’t be more different from the inflation we had in the 70s (which came from rising wages).

    The 70s style inflation is robust and will tend to accelerate over time if left “untreated”. Today’s inflation is fragile and will tend to collapse into deflation in the long run if unmitigated.

    Apples and oranges.

  18. johntron commented on Apr 27

    well, my curiosity over the Iraq war lead me to the following very rough, back-of-the-envelope calcs:

    Cash outlays for the war est $100b a year;
    2005 year end GDP; roughly $12,500b
    let’s say GDP grew roughly 2.5% yoy in ’06
    net $312b growth of GDP.

    so let’s say one-third of GDP growth in 2006 was attributable to Iraq/Afghanistan “supplemental/emergency” war spending.

    My brother’s in his first week in Iraq right now….said last night was surf n’ turf night….porterhouse + scallops, yum.

    Good to know that at least some of the $100b+ sees its way to the rank-and-file.

  19. wunsacon commented on Apr 27

    The inflation of the 70s started off with deficit spending and huge increases in commodities. Later, wages tried to catch up. (Notice it’s only a bad thing when wages increase. Rampant asset increases are viewed favorably. God forbid people make more money working rather than sitting on their laurels/capital.)

    Fast forward to today, it seems similar to me.

  20. super-anon commented on Apr 27

    The inflation of the 70s started off with deficit spending and huge increases in commodities. Later, wages tried to catch up. (Notice it’s only a bad thing when wages increase. Rampant asset increases are viewed favorably. God forbid people make more money working rather than sitting on their laurels/capital.)

    Fast forward to today, it seems similar to me.

    The fundamental difference is that today we have much greater debt burdens and debt servicing costs. So price increases are far more dependent on this debt increasing. Just look at housing – as soon as mortgage debt started declerating we began to see deflation in that market. We’re also beginning to see signs of deflation in highly discretionary consumer items now, something that may also be related to decreased mortgage borrowing.

    I think this may characterize the broader economy too – overall debt burdens are so substantial relative to incomes (primarily in the consumer economy, but that’s enough) that I think a slowdown in borrowing will choke off any rise in wages and revenues.

    This is a very different scenario from the 70s IMO.

  21. Fred commented on Apr 27

    With all this “slowdown” talk, you might have missed (or ignored) this minor “nugget” of important news:

    April 25 2007: 6:16 PM EDT

    WASHINGTON (Reuters) — The U.S. budget deficit for the current fiscal year appears on a course to come in lower than the $244 billion forecast by the White House earlier this year, a senior U.S. official said Wednesday.

    “We’re a little ahead of schedule. We expect, at the midsession review, we’ll be able to announce the deficit is lower than projected for this year,” White House Budget Director Rob Portman told Reuters in an interview.

    “That’s because of strong revenues and a little better restraint on spending so far,” he said.

    April 25 2007: 5:33 PM EDT

    WASHINGTON (Reuters) — Tax receipts from individuals hit a record one-day high of $48.7 billion on April 24, a Treasury Department official said on Wednesday.

    The previous record was $36.4 billion, set on April 25, 2006, said Jennifer Zuccarelli, a Treasury spokeswoman.

    The record reflects taxes not withheld from individuals over the course of the year, but paid to the government before this year’s April 17 income-tax deadline.

    While some of those tax payments come from taxpayers who withheld less tax from their paychecks than they owed, much of it was owed on income from investments or profits.

    So if this is a slowdown, I can’t wait for the “recovery”!

  22. VJ commented on Apr 27

    ‘Fred’ posted:

    The U.S. budget deficit for the current fiscal year appears on a course to come in lower than the $244 billion forecast by the White House earlier this year

    Closer to $800 billion.

    Tax receipts from individuals hit a record one-day high of $48.7 billion on April 24, a Treasury Department official said on Wednesday.

    The rich get richer, they pay more taxes.

    So if this is a slowdown, I can’t wait for the “recovery”!

    Record high federal deficits, record high bankruptcies, record high home foreclosures, declining wages, increasing Poverty, down millions of jobs since 2000, and the DJIA needs to be 14,000 just to get back to where it was in 2000….

    If this is a recovery, I’d hate to see a slowdown.

  23. Nova Law commented on Apr 27

    Good point, Fred. The people around here have been waiting for a massive drop in the markets since it hit its top way back in January 2004:

    As for me, I’ve made a fortune while these guys have been on the sidelines because of the “overpriced” market. :-)

  24. Fred commented on Apr 27


    The truth hurts, eh? The first quote you “corrected” came from the CNN (Reuters)…perhaps you can correct them.

    VJ says…”If this is a recovery, I’d hate to see a slowdown.”

    We’re still in your slowdown, right?

    Let’s clear up some facts:

    -The DJIA is at a RECORD NOW…2000 = 11,750

    -Budget deficits are FALLING, and have PEAKED

    -Wages are increasing

    -Down millions of jobs? Show the data sport. And don’t forget Since 2000 we had a tech crash, a terrorist attack on OUR SOIL, 2 wars, massive hurricaines, etc.

  25. kckid816 commented on Apr 27

    RE Budget deficits

    Let’s be honest about the deficits and not forgot that they set the estimates for the short falls and high levels so they say they’re beating them. Also, off the top of my head I remember reading about the fact that the budget deficit numbers put out by the bushies don’t include the additional (but necessary spending for Iraq and Afghanistan).

  26. P. K. commented on Apr 27

    L J could have added a few “big picture” things like:

    the national debt (cumulative annual “smaller than expected” deficits) up by 50% since those fleeting surpluses in 2000;
    much of which (pork barrel filled Highway, Farm, Energy bills) having NOTHING to do with defense/homeland security spending;
    resulting in debt servicing (interest payments alone) now at $400 billion annually;
    with the two freight trains of SS (nothing done)and Medicare (made worse) bearing down on us;
    that was with the conservatives in total control, and now the liberals are creeping back into the picture;

    yeah, can’t wait to see how it all plays out!

  27. Fred commented on Apr 27

    The point of my origional post was not to argue about the level of the (improving) deficits. I was circling back to the discussion of the ‘weakness” of this economy. Improving tax reciepts,and declining deficits are an alternate view.


  28. dark1p commented on Apr 27

    I suppose this argument between the bulls and the bears will not really matter until it does. It will be interesting to see how this plays out. Will the bulls step aside in time? Will their massive winnings of the past couple of years stay in their pockets? Or will the clever market end up taking their shirts like it has so many others?

    There are no questions regarding the bears. Overprudent though we may be, we will still have what we have, along with the modest returns of our risk-free investments. Though at some point even prudence will dictate shorting, if only through the better bear funds.

    It might be worth noting that the Dow represents 30 stocks. The S&P, 500. And the S&P still has a ways to go to reach the promised land. Will the divergence hold or not? There’s a gazillion dollar question.

    Like before the 2000-1 downturn, a small ratio of stocks are driving the advance now. Only about 10% of stocks are at all-time highs. The other 90%, not (bulls can add a ‘yet’ to that sentence).

    As for tax receipts, there’s inflation and the AMT at work there.

    Barry might say he goes by the numbers that are reported, but I bet there’s some gut feeling involved. That happens with experience. A lot of times, you can just sense things changing. Like him, others of us have been sensing that, also.

    Let’s all meet here on April 27, 2009, and see how everyone is doing. Provided we can all still pay for our broadband connections.

  29. VJ commented on Apr 27

    ‘Fred’ posted:

    The truth hurts, eh?

    Let’s see some first.

    The first quote you ‘corrected’ came from the CNN (Reuters)…perhaps you can correct them.

    They merely reported what the White House handed out to them.

    The DJIA is at a RECORD NOW…2000 = 11,750

    In inflation-adjusted dollars it’s still lower than 2000.

    Budget deficits are FALLING, and have PEAKED

    Federal budget deficits are continuing to increase.

    Wages are increasing

    Real wages have been declining or flat for six years.

    Down millions of jobs? Show the data sport.

    Try the National Labor Participation Rate, sport.

    And don’t forget Since 2000 we had a tech crash, a terrorist attack on OUR SOIL, 2 wars, massive hurricaines, etc.

    And according to the Congressional Budget Office, the drop in revenue from the four previous rounds of tax cuts enacted cost almost THREE TIMES AS MUCH as the cost of the Iraq war (including the costs of the military operations and subsequent reconstruction), all homeland security expenditures, the costs of rebuilding after September 11, all military action in Afghanistan, and all other costs of the ‘Global War On Terrorism’, COMBINED.

    Put down the Purple Kool-Aid.

  30. kckid816 commented on Apr 27

    I don’t know who you associate with but this economy is very weak for large segments of the population.
    I have anecdotal evidence but there are numbers out there to back up many of BR’s and other readers of this blog’s assertions. My family are union members in Kansas City and another relative owns a welding and machine shop. Both sources have told me that they are struggling to stay busy and for the welding/machine shop that is the first time in over a decade that they are struggling to find jobs. Also, my family is Mexican which qualifies the welding shop for guaranteed jobs due to a certain % of minority owned firms in Kansas City are guaranteed to these firms. Which further indicates that things are not as rosy as they seem. (cap ex..cough cough)

    Re Rising wages
    I have recently benefitted from a small raise. However in real terms I’m no better than I was before when you factor in the increases at the grocery store, utility bills, and gas prices. I don’t know if you do your own grocery shopping, but if you don’t ask your signifcant other how much less they get at the store if they keep the amount they spend the same? So when you factor in inflation and the absence of wage gains over the past 4-5 years we still have a lot of catching up to do. Factor in the debt that most house holds carry and you will see that more people are struggling to make ends meet than you think. reap what you sow.

    Also, to the arrogant Nova Law,
    A gain isn’t a gain until you cash it in. You have several times said how much money you have made which in my life experience indicates that you really haven’t done what you have said.
    I’m from the Show me state so until you show some proof of your gains (real examples of trades/dates) please shut up about how much money you have made. Take all that “I’m getting rich and you’re not” garbage over to investor’s hub and the other circle jerk boards. I don’t mind reading a bull’s case for the economy (which I do as this isn’t the only blog/news source I read) but you add nothing substanstive with any of your comments. Grow up and remember that money isn’t everything.

  31. Winston Munn commented on Apr 27

    Is the inflation of the 1970s really different from today?

    Quote Antony Mueller:
    “Yet in the late 1960s and during the 1970s, inflation and then stagflation hit Germany and other European countries also. One reason for that was the existence of the international monetary system itself, which obliged the member countries to stabilize their exchange rates against the US dollar.

    While the foundation of this system was cast aside with the expansion of the supply of dollars, the Bundesbank, along with other central banks in Europe and Japan, became the “buyers of last resort” for the weakening greenback. The world experienced a massive increase in liquidity originating from the US dollar that spilled over to the other major currencies.”

    This is more in keeping with my memory of those times, as well….it was wages trying to keep up with inflation that led to higher wage costs.

    It wasn’t until 1975 that Congress began yearly COLA increases for social security, and it was again increasing payments to keep up with inflation, not wages leading the way.

    My understanding is that inflation is always a money event, misrepresented as higher prices when in effect it is a debasement of the currency.

    Debt is indeed the key, and a large reduction in debt would cause all that liquidiy to be sucked back into the black hole from which it came, causing a decrease in cost of goods due to an increase in the value of the currency.

    Odd. Money is worth more, we call it deflation. Money is worth less, we call it inflation.

    If a company needs 100 engineers but only 50 are available to work, is their demand for higher wages inflation because it reduces the companies profit margin, hence the company must raise prices, which the marketplace then either accepts or rejects?

    Sounds to me like economics at work and nothing to do with inflation.

    But what do I know….I work for a living and have no Harvard MBA on my wall…a nice Elvis on velvet, but no degree.

  32. Nova Law commented on Apr 27

    The “arrogant Nova Law” says:

    I actually opened a position in QID today for the first time in nearly a year. I’m absolutely sure the market is now going substantially higher. :-p

  33. Winston Munn commented on Apr 27


    As an attorney, you have been making the case for the bull run, and I have no quibble with that; however, as a lawyer you must surely be able to flip just as easily and argue the bear case, as well, and with equal fervor.

    Do you sincerely think the bull case is stronger or do you simply enjoy the thinking processes of taking an opposing view?

    No dig intended, just curious.

  34. Shrek commented on Apr 27

    Interest rates are still way too low and in a financed debt dependent economy that is all that matters. Borrowing and leveraging. If the private sector was still running the bond market interest rates would have been at 7 percent two years ago, instead china and japan have overwhelmed the market by buying ever increasing amounts of our debt in order to obtain a mercantalist advantage. The private sector has for the most part left US assets. If you look at the TIC date the deficit is almost totally being funded by foreign CB’s. Private investors know the US dollar and US debt is vastly overvalued and have moved to protect their assets. I can’t strees how important is for private capital to decided rates. Governments cannot allocate resources. This reminds me of japans operations in the 80’s that tried to prop up the economy, but instead turned into the Baton Death March.


    Could you please do a post on our relationship with china, japan, and global deficits?

  35. chris commented on Apr 27

    All this shitty news is making me want to go buy another plasma. Are these things waterproof? I’d love to put one in my shower.

  36. Nova Law commented on Apr 27

    Winston, I think the market is overbought in the near term and is ripe for a correction. Which is why I went put on a big short position today.

    Long term I am very bullish, and I want to buy more at lower prices, which I think we’ll see before long.

    For those of you who really want to know my portfolio, my five biggest holdings are MUHLX, FLPSX, TEMFX, MCHFX, and MINDX. And as of today, QID. Also a fair amount of cash, and a load of BRK.B, which I don’t trade, but have salted away. :-)

  37. Nova Law commented on Apr 27

    Ooops, left off FAIRX and LMNVX also.

  38. JuanBobsDad commented on Apr 27

    For me “The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities” is a must-read because I cannot understand the GAAP of inventory being a “+” when it is created and a “-” when it is reduced. GAAP seems to be exactly backwards on this and is responsible for exaggerating the “booming” GDP when houses (and autos and etc.) were being over-produced and is now a negative while this over-production liability is being worked off. Inventories are always a financial liability, in fact.

    In my simple mind the GDP estimate should actually be 1.9% instead of 1.3% (which still isn’t exciting) and, likewise, past quarterly GDP estimates were never as good as reported. In other words, the GDP has been less variable than purported and fits with this Joe’s perception that the economy has been like a blueberry pancake for several years.

    But, I digress… Thanks for poining out Baumohl’s book, Josh and MAS.

  39. Winston Munn commented on Apr 27


    Thanks for responding. I am reminded in today’s market of a remark I heard a few years back from a very successful, long-time trader when he said, “Right now, investing in the market is like being a cow on a frozen farm pond…you might make it across just fine but the odds aren’t good.”

    I see this market as a “Flying Wallenda” market; over the next 8-24 months it could continually track higher, but at the same time one tiny slip could cause the whole pyramid on wheels to collapse.

    In a sense I understand what Panzner wrote about when he implied that although the interdependencies in the global financial systems are supposed to muffle and diffuse risk, that if the shock is great enough the opposite would occur and they would then become a magnifier of risk.

  40. Justin commented on Apr 27

    I agree with Winston. The biggest thing is that we have NO idea what we’re heading into. If this really is a new economy then these are unchartered waters and they may be smooth sailing or be quite choppy – with a strong possibility of capsizing.

    Now, I am like many who read here and believe that “new” is not necessarily better or even new. Although I fall victim too often in trying to interpret what is going on, looking back and comparing to ’29, ’72, ’87, ’94, ’99, last august, whenever is not going to do as much good as just looking at the facts.

    1. Earnings growth has slowed but we are at new highs

    2. The economy is slowing but we are at new highs

    3. The hidden risks (due largely to derivatives) continue to mount but we are at new highs.

    Those facts cause me to look to get out of the market from a risk/return standpoint. One could argue that these may be overblown and payoffs could be substantial for someone who goes in. It’s basically up to the emotional capacity for risk, because the capacity for logic has been all but removed in the recent weeks and months.

    At this time, I believe you can’t look at the market as an entity or numbers, ratios, charts, historicals. The next move is going to be highly emotional, enormously psychological, and incredibly personal. At this point the best research you can do is talk to people, read what they’re reading, watch what they’re watching, and keep an eye on the rest of the world.

    Whatever it is it’s going to be an interesting time in the next few weeks I believe. It almost feels like today was the anticlimactic ending that a Television Season Finale often has – leaving you wanting for more but incredibly frustrated and angry.



  41. Winston Munn commented on Apr 27

    There is no doubt that globalization has created a new “wild card” in this game and as of yet its role has not been completely identified. Is it the spade queen you try desperately not to hold or is it a joker that fills a royal flush?

    It may turn out to be both.

  42. Justin commented on Apr 28

    I like the wildcard analogy. The game is essentially the same but for equilibria to be discovered or attained one must know the value and location of the card. Maybe right now everyone is so concerned with searching for the wild card they are ignoring the rules of the game itself.


    Sorry for the confusion. I was talking about the new all time and near term highs we made this week in the worldwide equity markets .

    But in general we can be slowing and still make new highs. Slowing does not mean declining. We are discussing growth. The 10 year old child may begin to grow much mor slowly than he did when he/she was 7, but that doesn’t imply shrinking. Each year he/she will most likely make new “heights”.


  43. Winston Munn commented on Apr 28

    “It may turn out to be none of the above.”


    Exactly right. That is the enigma. What will the influence be and where will it be felt, if at all? Will it be marketwide or company intensive? Will globalization protect the multinationals sufficiently enough from a serious U.S. recession?

    Jesse Livermore said in “How to Trade Stocks”, “To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock. Speculation is nothing more than anticipating coming movements. In order to anticipate correctly, one must have a definite basis for that anticipation…”

    I’m not really trying to read tea leaves or gaze into a crystal ball – but I am trying to form an opinion on what “the next move of importance” will be.

    The effect of globalization on the market is making it difficult to know if historical indicators are still valid.

    Taking a long position or short position now in this market without knowing if globalization will intradict to forestall any serious fall or instead act as a catalyst that propels a collapse is to me a lot like being the first guy ever to ride in a hot-air balloon over the Grand Canyon – it takes a lot of blind faith – not the pilot’s skill but rather in the balloon.

  44. Nova Law commented on Apr 28

    Winston, we never know where we are going in the future. If one wants certainty, one invests in CDs.

    Rosie, if BRK dropped 65% and Warren is still at the helm, I would end up being 0% cash and 100% in but one stock. And that would be BRK.

    See you all in Omaha next Saturday.

  45. ECONOMISTA NON GRATA commented on Apr 28

    Seems to me, and correct me if I’m wrong, that we’re kind of stuck between the dog and the hydrant.

    Brake out the foul weather gear.

    Best regards,


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