Stone McCarthy On The GDP Print: "The FOMC's Growth Forecast Now Appears A Bit Optimistic"

Tyler Durden's picture

Before we move on from today's atrocious GDP number, we are presenting the one firm whose macroeconomic opinion we truly respect: Stone McCarthy, and yes we will make an exception for Goldman's comments because we are delighted to recall how Jan Hatzius predicted a new golden age for the US economy as recently as December 1 (read at: "Goldman Jumps Shark, "Fundamentally" Shifts Its "Bearish" Outlook On Economy: Goes Bullish, Hikes Outlook"). Because every documented incident of failed "shark jumping" deserves the proper amount of gloating.

But back to SMRA:

Key Take-Aways:

1) Headline GDP--Unrevised at +1.8%, But Important Compositional Revisions
2) Surprising Downward Revision to PCE, Points to Weaker Aggregate Demand
3) Upward Revision to Inventories Points to Lower Inventory Building Ahead
4) Net GDP Revision Points to a Slower Trajectory of Growth than Apparent Earlier

The Second Estimate of Q1-11 GDP revealed a 1.8% rate of gain unchanged from the 1.8% per the Advance release. While the headline Q1 GDP rate of change was unchanged from the Advance estimate there were important compositional revisions, which in combination point to a slower trajectory of growth than appears to be on track prior to this rlease. In other words, we are a bit disappointed with these data.

Guess who is most embarassed by this data. Hint: not Goldman.

For all of 2011 the FOMC anticipates growth of 3.1% to 3.3%, implying a growth rate of around 3-1/2% to 3-3/4% over the balance of the year. This now appears to be a bit optimistic. It now appears as if Q2-11 may post a gain of about 3%. For the FOMC's forecast to be realized we would need 4% growth in the second half.

A few days ago we predicted Consumer Discretionary will soon be one of the weakest sectors on a relative performance basis. This GDP report confirms it.

The most disappointing downward revision was PCE, which was revised to +2.2% from +2.7% per the Advance release. The downward revision was spread across Durables, Nondurables, and Services.

The downward PCE revision subtracted 0.38%. In other words, the revised PCE contribution was +1.53% down from +1.91% per the Advance release

On the surface the weaker PCE contribution brings into question the momentum of consumer spending. Could the Q1 data be signalling a slower trajectory of this core GDP component?

Offsetting the downward revision to PCE was an upward revision to Q1 Inventories. Inventories made a Q1 contribution to GDP of 1.19%, up from 0.93% per the Advance release, providing a 0.28% positive contribution to the GDP revision.

The stronger Q1 inventory story could actually be at the expense of coming quarters. The added contribution to Q1 GDP will probably be at the expense of Q2 GDP.

Net-Net, the composition of the revised Q1 GDP data is disappointing. The momentum of consumer spending looks weaker, and the need to build inventories appears diminished. This is a prescription for slower GDP growth than earlier appeared on track.

And scene.

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FOC 1183's picture

SMRA stands almost completely alone in the 'value added research' category (interestingly, they released an analysis eerily similar to one that had been previously reported on ZH the other day)

slaughterer's picture

1.8%, well, it was positive at least.

johngaltfla's picture

A bit optimistic? More like the judge in My Cousin Vinny asking that age old question:

"Are you on drugs?"

Man this miss and the financial compenent just rings true what ZH and many of us have been saying: Without cash flow eventually profits begin to dry up. Guess what? The lack of cash flow is finally starting to hit the top and bottom lines and the games are almost up. There's a liquidity crisis coming and when it hits this time, the Fed will once again be too slow to react and cause another "recession."

Henry Chinaski's picture

Cash flow is a fact. Profit is an opinion.

Rainman's picture

...and channel stuffing is an illusion.

BobPaulson's picture

These financial sell side prognosticators are like a guy on coke at a party that always has to keep talking, even if it's out their ass. Just fill the silence with something that hopefully distracts people.

Dolemite's picture

Dump stocks and the EurUSD

Buy US treasuries

vote_libertarian_party's picture

About that bar chart above...what am I missing?


All of the components are < 1.8% but they average to 1.8%???

Henry Chinaski's picture

it's like the math question

add them all up including the negative ones

firefighter302's picture

Tasteful reply, Henry.

I was expecting a sarcastic retort from one of the "fight club crowd". 

A simple polite accurate reply?

Very Refreshing and very Classy.




Temporalist's picture
HSBC, Goldman Held $335 Million of Libya State Funds, Global Witness Says


UPDATE 2-NY Fed probing Goldman mortgage servicing unit


dbTX's picture

This whole group we're beholden to don't know their collective gluteus maximus from wild honey. I think their most private inter sanctum must be a dart room.

jsmfr's picture

To vote_libertarian_party:

What you are missing is evidently eyes and a brain. The chart shows contributions to GD growth by sector. The bars therefore sum to 1.8% (rounding might affect this by 0.1pp).

traderjoe's picture

Do you really find being an asshole that enjoyable? Don't like the question - don't respond.

RobotTrader's picture

PIIGS banks up again today.

Let's rock and roll on the long side......

Fourth Horseman of the Apocalypse's picture

The PCE was impacted by the late Easter season this year.  We may see an added boost in the 2Q11 GDP data.  

sbenard's picture

I wonder what GDP will be when we see the "conflagration in the bond markets" that David Stockman expects? What will happen to GDP when the "viscious sell-off" occurs? What will it look like when all entitlements come to a sudden and crashing end because our debt crushes us like a soda can?

We can not defy the laws of sound economics forever. Those laws are going to demand a pound of flesh -- soon!

RobotTrader's picture

New highs for Tiffany, Coach, and Family Dollar.

Retail continues to price in a consumer spending boom of unparalleled proportions.

11b40's picture

Tiffany & Coach up because their customer base is doing just great, thank you very much.

Family dollar up because their customer base is expanding dramatically.

Mid-range retail will be crushed, along with the middle class.

sbenard's picture
“For the stock market nothing seems to matter until, suddenly, it does.” --Charlie Minter, Comstock Partners In other words, Wall Street has a Pollyanna complex. It will continue to ignore the bad news until it is soooo bad that it no longer can. When that day comes, there will be blood on Wall Street.
Paper CRUSHer's picture

Household brand Heinz has decided to expand its souplines..... err breadlines......err.....i meant food stamp recipients as it plans to reduce its workforce by thousand and close five factories worldwide.Majority of the cuts will be in the U.K.

In other words,its all bean due to the increase in money souply.....Damn you stagflation....damn you.

redarrow's picture

And how is this supposed to increase growth or employment? To me this sounds like a move that would inflate corporate profits and have few effects.
Cdad's picture

Roach Motel [SPY] is losing that $132.05 mark where Tuesday's action indicated algorithmic short selling spotted by mynhair.

Do not underestimate the importance of that mark, as it will green light wholesale dumping of stocks, especially those brain dead, balloon, momentum stocks.  And at that point, the S&P will give up the ghost on that 100 day sma in short order...and then will come the Screaming and Plunging phase of market action needed to justify QE infinity.

This is the wasteland that Ben "I got your free money" Bernanke has made for you and for me.


candyman's picture

what would be next support?

slewie the pi-rat's picture

radioactive stagflation = BiChFlation

and the scene in japan = extremely serious: Japan Wind Map

the costs of nuclear science and energy are skyrocketing higher, faster, than the econometric models yet allow. 

marcusfenix's picture

GDP= gross declining product? Maybe they should just label it PDGDP as in perpetually declining gross domestic product...

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