GDP Growth?

by Larry Levin

We received more very important economic news today that was again very poor. Economic "growth" contracted violently in the 1st-Q.

The real gross domestic product (inflation-adjusted & seasonally adjusted) value of all goods and services produced in the US fell at a 6.1% annualized rate in the first quarter, nearly matching the 6.3% decline in the fourth quarter of 2008.

It was supposed to be -4.6%. Ummm, way off folks; it was 33% WORSE THAN EXPECTED. Wall Street repeated the same old saw - "it could have been worse." Yeah like 33% worse, but I suppose it could have been 33.1% worse. Yup, 33.1% worse would have really been bad.

Last quarter's GDP was -6.3% and this quarter's was -6.1%. Wall Street cheered it that it was slowing. The FOMC then said later in the afternoon that the economy still sucks, but it's not sucking at the same pace that it used to suck. It currently sucks at a less crappy rate - hurray! Because the rate of suckiness is slowing doesn't mean things are great, just like cancer spreading at a slower rate doesn't make one healthy.

The two-quarter contraction was the worst in more than 50 years. It could have been worse; thank God it wasn't the worst in 51 years. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters. With a 0.5% drop in the third quarter of 2008, it's the first time the economy has contracted for three consecutive quarters since 1975.

In the past four quarters, the economy has actually fallen (not annualized) 2.6%, the biggest year-over-year decline since 1982. Hmm, I guess it could have been worse.

Here are some details:

? Exports fell 30%, the most in 40 years.

? Imports dropped 34.1%, the most in 34 years.

? Final sales to domestic purchasers, a measure of US demand, fell 5.1%.

? Government spending fell at a 3.9% annual pace, the largest drop in 13 years.

? Spending by state and local governments fell 3.9%, the most since 1981.

? Federal spending fell 4%, including a 6.2% drop in the volatile defense spending category.

? Investments in housing fell for the 13th consecutive quarter, dropping at a 38% annual rate, the largest decline since 1980.

? Business investments fell at a record 37.9% annual rate in the first quarter.

? Investments in structures dropped a record 44.2%, and investments in equipment and software fell at a 33.8% pace, the biggest drop since 1958.

? OK, so how did this happen: Spending on durable goods rose 9.4%, spending on nondurable goods rose 1.3%, and spending on services increased 1.5%.

Given that last bullet, I have to wonder if the data was manipulated. How could the prior bullets lead to increased spending anywhere? Even if it is true, it's probably due to a one-time event of tax refunds in the first quarter.

Read the first nine bullets again and say to yourself "Well, it could'a been worse."



Previous Day's Trading Room Results:

Trade Date: 4/29/09

E-Mini S&P Trades*
(before fees and commissions):

1) FT buy @ 1:00pm at 871.75 = +1.75 (1 lot)

2) Engf sell @ 2:10pm at 873.00 = -1.00 (1 lot)

3) FT sell @ 2:40pm at 870.25 = b/e (1 lot)

4) Algorithm positions (5)...combined Secret's and Algo total...+6.50


Electronic (YM) Mini-Dow:

1) None today



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