Summary
Later this morning, we will see if GDP can save the stock market -- for a while!
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After several attempts yesterday at a rally, the stock market finally held on to enough of one going into the close to finish in positive territory. The results were not exciting, though. The DJIA and the S&P 500 were up a modest 0.2%, although the NASDAQ 100 did better at +0.7%. On the other hand, the highly beleaguered Russell 2000 ended the day with a very small loss.
Since its 5/5 closing high of around 782, the Russell is down more than 9%, noteworthy, because this index had become the genuine showcase for "crowded" trades. And when you participate in those, as many, many hedge funds have, you better leave something on the table and get out early. If you don't, you quickly find when you go to sell that in the wrong climate, it is awfully difficult to find the other side of your trade.
At 0830 ET today, the Commerce Department will release its second ("preliminary") estimate of first-quarter gross domestic product. Wall Street is looking for a major upward revision to the initial number that was reported at the end of April. In that report, Commerce estimated that GDP had risen at a 4.8% annual rate, versus the paltry 1.7% rate of last year's fourth quarter.
The consensus forecast of today's revision is looking for a very healthy 5.8% rate, a full percentage point above the April number. If anything like this number is realized, Street bulls will immediately give it their best shot at promoting it into something to help save the stock market. Of interest here will be that many of the people doing this will be same folks who admonish other people for "looking in the rear view mirror" when it comes to assessing past data. Of course, that is only when the past data doesn't help their cause!
Following are a few numbers to keep in mind, as we approach today's revision.
Translated into dollars, the 4.8% rate of growth shown in the April report resulted in real GDP growth during the first quarter of $133.1 billion. Hitting the 5.8% rate that is forecast requires GDP growth of $159.7 billion, or an increase of $26.6 billion from the last report.
Within the context of the configuration of April's report, much of the increase will have to come from a downward revision in the trade deficit ("net exports"). The Commerce Department produced a major, favorable "surprise" when it recently reported a March trade deficit about $5 billion less than had been expected, thereby covering that base with regard to today's report. However, these truly are the type of "surprises" that lack credibility, unless, of course...
Another area capable of producing some quick GDP growth is "inventory change." Therefore, don't be surprised if today's report shows a higher rate of inventory accumulation during the first quarter.
Yet another area capable of goosing GDP growth is a simple downward revision in the inflation rate used to convert nominal (pre-inflation) GDP into real GDP. This essentially is a one-for-one relationship, so each 0.1% reduction in inflation produces a 0.1% increase in GDP... neat, heh! Plus, this particular method of generating higher GDP, if the Commerce Department resorts to it, will enable all the tautmesiters who will appear later today on CNBC, Bloomberg, etc. to continue their incessant mantra of "there simply are no major inflationary pressures in the system!"
At any rate, the actual numbers will be out in a few hours, thereby permitting further examination. (NOTE: "Actual" as used here should not to be confused with "accurate.") To help in the process of further examination, the table below contains highlights from the Commerce Department's first GDP report, released on 4/28.
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ADVANCE ESTIMATE OF FOURTH-QUARTER 2005
REAL GROSS DOMESTIC PRODUCT (Released
04/28 -- Billions of 2000 Chained Dollars
at Seasonally Adjusted Annual Rates)
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1Q06/4Q05
1Q2006 4Q2005 Change/ 4Q05F/
Advance Final Impact 3Q05F
--------------------------------
Real GDP 11381.4 11248.3 4.8% 1.7%
Inventory Change 21.9 37.9 -$16.0 $51.2
Real Final Sales 11355.3 11207.5 5.4% -0.2%
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Components of GDP
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Personal Consumption 8032.0 7925.4 5.5% 0.9%
Nonres. Fixed Investment 1364.6 1319.7 14.3% 4.5%
Resid. Fixed Investment 618.2 614.2 2.6% 2.8%
Net Exports -678.2 -655.2 -$23.0 -$37.7
Government Purchases 2013.2 1994.1 3.9% -0.8%
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<---- Price Indexes --->
Gross Domestic Product 3.3% 3.5% -- 3.5%
Gross Domestic Purchases 2.7% 3.7% -- 4.7%
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MAJOR GDP COMPONENTS -- CHANGES BETWEEN
"ADVANCE" 1Q2006 AND "FINAL" 4Q2005 ESTIMATES
(Billions of 2000 Chained Dollars at
Seasonally Adjusted Annual Rates)
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1Q2006 4Q2005
Advance Final Change
-----------------------------
Real GDP 11381.4 11248.3 133.1
Inventory Change 21.9 37.9 -16.0
Real Final Sales 11355.3 11207.5 147.8
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Personal Consumption 8032.0 7925.4 106.6
Nones. Fixed Invest. 1364.6 1319.7 44.9
Resid. Fixed Invest. 618.2 614.2 4.0
Net Exports -678.2 -655.2 -23.0
Govt. Purchases 2013.2 1994.1 19.1
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REAL GROSS DOMESTIC PRODUCT (SEASONALLY
ADJUSTED ANNUAL RATES, 2000 CHAINED DOLLARS)
--------------------------------------------
Year Q1 Q2 Q3 Q4
----------------------------------------
2006 4.8% -- -- --
2005 3.8% 3.3% 4.1% 1.7%
2004 4.3% 3.5% 4.0% 3.3%
2003 1.7% 3.7% 7.2% 3.6%
2002 2.7% 2.2% 2.4% 0.2%
2001 -0.5% 1.2% -1.4% 1.6%
2000 1.0% 6.4% -0.5% 2.1%
1999 3.4% 3.4% 4.8% 7.3%
1998 4.5% 2.7% 4.7% 6.2%
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MEMO ITEM: Annual change in real GDP
before and after the "comprehensive
revision" published by the Commerce
Department on 12/10/03.
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1929-2002 1959-1992 1992-2002
---------------------------------
After 3.4% 3.4% 3.2%
Before 3.4% 3.4% 3.2%
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