Thursday, October 29, 2009

GDP signals end of the recession...

As someone said, the GDP makes economists feel as smart as physicists because they think if they can measure something they can exert some control over it.

The GDP number was +3.5% for the third quarter which was the first expansion of the US economy in over a year. There will be revisions to this number in November and December, but let's look at the details.

1 - The consensus estimate fell from 3.2% to 3.0% earlier this week because Goldman Sachs dramatically lowered their estimate. This pulled down the average GDP estimate and made today's "outperformance" seem more dramatic.

2 - Now this gets a little too detailed for the average person to care about but the GDP deflator was 0.8% vs. a consensus of 1.4% indicating that prices did not rise as much as economists expected…. This adds 0.6% to GDP for the quarter. If prices had risen as expected, the GDP for the quarter would have been 2.9% and would have been below expectations.

#2 is really the key point. There are so many variables in the GDP calculation that any single change in the assumptions can have a meaningful impact on the final number.

Don't get me wrong, this is a step in the right direction, we want the economy expanding. However, I think by the time people dissect the data and strip out the impact of cash for clunkers and the homebuyer tax credit we may realize that we're still bouncing along the bottom.

This is purely anecdotal and it may have something to do with the end of the shipping season approaching, but the volume of traffic on the St. Lawrence Seaway has spiked substantially in the past month. I don't have the hard data, but during the summer we might have seen 1-4 ships per day and lately it seems as though there might be 8+ ships going through on any given day.

Again, this might just be fleet repositioning for the upcoming closure of the Seaway or it may be a sign of life in the Canadian economy. We won't really know until we see some data on gross tonnage going through the locks.

thus 60bp of the “beat” was due to lower than expected price increases..
so the actual number missed analysts expectations for growth and inflation…

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