US GDP –5.7%, quite in line

• Overall US GDP numbers indicated that the rate of getting worst is getting less worst.  GDP numbers were now close to the median of the consensus range.  at –5.5% and the market took unfavorably at first but shrugged it off.  (Sideways is the new UP)
• While the drop was still steep, recent data, such as housing and new filings for unemployment benefits, have hinted at an easing in the rate at which the economy was tumbling and many economist expect growth to resume by the end of the year.

"The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5 percent. It should be the last of the negative quarters," - Christopher Low (chief economist at FTN Financial in New York)

• None the less, the GDP report also suggested that sharp belt tightening by business was paying off as corporate profits after taxes rose 1.1% in Q1 2009 compared to a –10.7% in Q4 2008, which was noted as one of the biggest decline since 1994.

"It provides some hints that maybe corporations might have the ammunition to put some money to work in the economy. We are seeing some signs that the intensity of the recession is lessening," - Michael Strauss (chief economist at Commonfund in Wilton, Connecticut)

• Q1 2009 economic activity was dragged down by cutbacks in spending in business and government, a further retrenchment in homebuilding and a drop in business investment spending as well as a slump in exports.
• Business inventories fell $91.4 billion after slipping $25.8 billion in Q4 2008. 
• In April, the department reported a record $103.7 billion drop for Q1 2009.
• Inventories subtracted 2.34% of the overall GDP.  So excluding business inventories GDP would have contracted 3.4%
• Exports fell 28.7% largest decline since 1971. After dropping 23.6% in Q4 2008.
• Domestic demand or imports also dropped tremendously at –34.1% in Q1 2009.
• Business investment spending fell –36.9%
• Home building activity fell 38.7%
• Consumer spending which accounts for 70% of US GDP rose 1.5%.  Slightly slower than the 2.2% Retail sales numbers in April.

"The lower consumption figure is a reminder of the fundamental problems that households are facing, and the slower inventory run-down means that there is more to come in the current quarter," - Harm Bandholz and economist  (Unicredit Markets & Investment Banking in New York.)

I think all these developments are showing signs that the US economy is heading to the right direction.  Although we may not get back to peak 2006-2007 levels, US consumers are readjusting their behavior for the better.  The data about business inventories is also a good sign showing that businesses are readjusting their output to meet the current demand and is starting to show signs of leveling.  GDP will be slow for the next few years for the US and probably one of the biggest headwind for that is meeting employment demands for the population as more and more people go out to the workforce every year.  But I took today’s GDP data as a positive.

Source: RTT News, USA Today, Cleveland Fed & WSJ