Far from a recession, the economy is still growing…
The U.S. Commerce Department said the economy grew at an annual rate of 0.6% in the first three months of the year, in an initial estimate of gross domestic product for the quarter. The growth matches that of 2007’s final period.
Housing hit the economy. Residential fixed investment dropped by 26.7%, reducing overall GDP by 1.23 percentage points. In short, GDP growth absent housing as an acceptable 1.8%.
Now, clearly financials like Citigroup (C), Wachovia (WB), Merrill Lynch (MER) and Bank of America (BAC) and their investors have suffered. If you are an investor in housing related stocks like Centex (CTX), USG (USG) and DR Horton (DRH) the last thing you want to hear is that the economy is not in recession. In your corner of the world it clearly is. However, while the economy as a whole is growing at a far from acceptable rate, it is STILL GROWING.
Even Berkshire’s (BRK.A) Warren Buffett jumped on the recession call yesterday saying we were already in one. I have to ask Warren on this one. He always says he does not invest on “macro forecasts” because they are never accurate. He also replies when asked about what is going to happen in the future “I have no idea”. My question then is, “why then is he making macro predictions and forecasts now?” To be honest, Warren is the greatest investor ever but he is on TV just way too much lately. What he said meant more when we heard from him occasionally, rather than weekly.
I feel bad for those making the treck out to Omaha this weekend for the annual meeting. What could they possibly hear from him he has not said at least 5 times in the scores of interviews he has done the past two months? I have done it in the past and it is a great time. But, we were hearing new stuff back then, not the rehash this years attendees will get..
Anyway, this quarters growth illustrates the strength of the economy. To take the massive hits from both housing and the credit markets and to be still expanding is quite impressive.
These numbers now push the odds of having an actual recession even lower than they were a month ago. In order to actually have a recession now we need the spring and summer numbers to contract. The need for this from the recession camp is facing strong headwinds as last years rate cuts begin to hit the system and $150 billion in stimulus checks start showing up on consumers doorsteps.
Should Bernake & Co. take steps today the strengthen the dollar, we can add lower energy and food prices to the list. Does this mean we jump to 2% to 3% growth this summer? No. It does mean we ought not see a negative number and given what has happened the last 12 months, that is just fine.
People were fond of saying Alan Greenspan engineered a “soft landing” when he was the head of the Fed. When this is all over, Bernanke ought to be credited with engineering a “fly by” in far more difficult circumstances.
Disclosure (“none” means no position):Long C,WB ,None
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3 replies on “US GDP Grew in Q1: Were is that Recession?”
Regarding Buffett, I’d keep in mind that even he admitted to the fact that if you go by the GDP numbers, no we are not in a recession; but rather that by common sense measures, we more likely are.
that is my point… people are running around saying were when we are not…
a slowdown is far different than a recession..
there is a whole generation of investors who do not really know what one is..
Warren Buffett–In 1974
Forbes, 04/30/2008
Memorable quotes:
I call investing the greatest business in the world,” he says, “because you never have to swing.” You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
But pity the pros at the investment institutions. They’re the victims of impossible “performance” measurements. Says Buffett, continuing his baseball imagery, “It’s like Babe Ruth at bat with 50,000 fans and the club owner yelling, ‘Swing, you bum!’ and some guy is trying to pitch him an intentional walk. They know if they don’t take a swing at the next pitch, the guy will say, ‘Turn in your uniform.'” Buffett claims he set up his partnership to avoid these pressures.