GDP + consumer confidence numbers = stagnation
Two economic numbers came out this morning that paint a picture of a stagnant economy lumbering sideways.
First, the Commerce Department said that its final revision of fourth-quarter 2009 GDP indicates the economy grew at a 5.6 percent annual clip, which is slightly down from the government's earlier estimate of 5.9 percent.
Later in the morning, the Reuters/University of Michigan March consumer sentiment report came out and showed that consumer sentiment ... remained unchanged from February.
Taken together, what do the two numbers tell us? That the economy is stagnant.
Economists concede that the 5.6 percent growth in fourth-quarter GDP -- a good number, by the way -- largely came from manufacturing. That sounds good at first glance. But if you dig a little deeper, you see that manufacturers were merely making products to restock store shelves that had been allowed to dwindle during the Great Recession.
The grand bulk of the economic expansion resulted from inventory adjustments. Businesses wound down inventories for much of last year, but that pace slowed immensely during the fourth quarter. According to the report, businesses slashed inventories by $139.2 billion in the third quarter and $160.2 billion in the second. But in the fourth, inventories decreased by only $19.7 billion. The change in inventories added 3.79 percentage points to the fourth-quarter GDP rise.
The takeaway: Don't expect first-quarter 2010 GDP to come in that high. In fact, forecasters and economists expect the U.S. economy to grow at only a 3 percent rate through the rest of the year. (Which still beats really stagnant Europe, which will be lucky -- lucky -- to see a 1 percent GDP gain.)
The problem? Unemployment. At 9.7 percent, that's a lot of people out of work, not buying things and not making things to be bought.
As for consumer confidence, the preliminary March index number came in at 72, compared with the February number of 73. As I point out each month, the consumer sentiment number is made up of two components: how consumers feel about the economy right now and what kind of shape they think the economy will be in in six months.
The current conditions number remained unchanged at 82 from February to March. The expectations number fell from 69 to 68. Big whoop. This means consumers don't think things are going to be worse, but they don't think things are going to be better. As this remains a jobless recovery, it must therefore become a consumer spending recovery. Consumer spending accounts for 70 percent of U.S. GDP. Less-than-confident consumers don't spend, and that blunts recovery.
Now, all that being said, this report would not be complete without noting that Wall Street, apparently, does not care.
Stocks closed mixed on the day but up for the week, between 1 and 1.5 percent. Year-to-date, all three major indexes are up between 4 and 6 percent. As they say on Wall Street, "the trend is your friend." Another thing they say is, "Don't fight the tape." This means that even if you think the underlying economic fundamentals don't point toward growth but the market keeps going up, it's harder and harder to justify why you're still sitting on the sideline.
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March 26, 2010; 3:01 PM ET
Categories: Data , The Ticker , Unemployment | Tags: GDP, What does the GDP number mean?, consumer confidence, stagnant economy
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