Thursday, July 31, 2003

The advance GDP figures for 2003:II are now in! Drum roll, please . . .
The U.S. economy, lifted by consumer and business spending, broke out of the doldrums and grew at an annual rate of 2.4 percent in the second quarter of 2003, the strongest showing in nearly a year.
Now, before you all get caught up in the Wall Street festivities this morning off such numbers, let the General take you on a stroll down GDP lane.

First, the US economy finally got a little zig after two straight quarters of zags. Recall that in both 2002:IV and 2003:I GDP rose a paltry 1.4%; in comparison, 2.4% looks pretty good. But in comparison to the zigs of 2002, things don't look nearly so rosy. In 2002:I GDP rose 5%; in 2002:III, 4%. These latest figures are a far cry from those real zigs.

Second, let's disassemble the numbers and find out exactly where this GDP jump came from. The two primary contributors to the rise were consumer expenditures on durable goods (+1.68%) and spending on national defense (+1.69%). No other dimension of the US economy grew by even 1.0% in 2003:II. The growth in consumer spending on non-durable goods was less than half that of durable goods spending, and non-defense federal spending actually dropped 0.1%.

Now let's take those durable goods numbers apart. 53% of the durable goods increase was in the automotive sector, 32% in furniture and household goods. Readers of the General know that the refi boom is over, so those furniture and household goods numbers are clearly unsustainable. The recovery in auto sales for 2003:II pulled the industry out of its two quarter tailspin, but as USA Today reported earlier this month,
Wall Street analysts say auto sales now are so heavily driven by incentives that sales aren't a meaningful signpost.
So what Wall Street is really celebrating today is an unsustainable blip in auto sales and refi-driven spending, and the war in Iraq. Bizarre!

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