Contrary to expectations by the endlessly wrong Wall Street crew, the second revision of Q1 GDP came not as expected at 2.2% (up from 1.8% in the first estimate), but far, far lower at 1.8%. And while the number is largely irrelevant for the future and even current economy, it shows that the contraction is far more pronounced. More troubling is the shift in various GDP components contributing to the number: the biggest delta was Personal Consumption Expenditures which missed by a whopping 21%, plunging from 2.7% to 2.2%, on expectations of a rise to 2.8%. As a result as the chart below shows, the "growth" in Q1 was based on even shakier grounds: the contribution from PCE plunged from 1.91% to 1.16%, with Fixed Investment plunging from 0.93% to 0.26%. The plug: why old faithful of course - Inventories, which "added" 1.19% to growth, up from 0.09% in the first revision. Ex the now traditional inventory build, Q1 GDP growth was sub 1%. Which means that once the inevitable liquidations commence, the US will go into all out contraction. And confirming the keyword of 2011 "stagflation" is now firmly entrenched, was the BLS advising us that initial claims surged from 404K to 424K. So much for no QE3. Next up, as we have said ever since January, Jan Hatzius and Bill Dudley start having tete-a-tetes. Everyone knows what follows...
Charting the troubling shift in GDP components:
From the truly ugly BEA report:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the first quarter of 2011, (that is, from the fourth quarter to the first quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.
The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and a deceleration in nonresidential fixed investment that were partly offset by a sharp upturn in private inventory investment.
Motor vehicle output added 1.28 percentage points to the first-quarter change in real GDP after subtracting 0.27 percentage point from the fourth-quarter change. Final sales of computers added 0.06 percentage point to the first-quarter change in real GDP after adding 0.35 percentage point to the fourthquarter change.
The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the first quarter, unrevised from the advance estimate; this index increased 2.1 percent in the fourth quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the first quarter, compared with an increase of 1.1 percent in the fourth.
Real personal consumption expenditures increased 2.2 percent in the first quarter, compared with an increase of 4.0 percent in the fourth. Durable goods increased 8.9 percent, compared with an increase of 21.1 percent. Nondurable goods increased 1.1 percent, compared with an increase of 4.1 percent. Services increased 1.5 percent, the same increase as in the fourth.
Real final sales of domestic product -- GDP less change in private inventories -- increased 0.6 percent in the first quarter, compared with an increase of 6.7 percent in the fourth.
And from the Initial Claims report:
In the week ending May 21, the advance figure for
seasonally adjusted initial claims was 424,000, an increase of 10,000 from
the previous week's revised figure of 414,000. The 4-week moving average was
438,500, a decrease of 1,750 from the previous week's revised average of
The 99 week cliff is affected ever more people: 63K dropped off EUCs and Extended Benefits.
Summarizing it all: Stagflation.