Thursday, August 27, 2009

The GDP Q2 1% Drop: Fact, Fiction, or Spin?

US stock market futures just turned higher after being in negative territory earlier today. The reason is that (Bloomberg) "the U.S. economy contracted less than anticipated in the second quarter as a jump in government spending and smaller cutbacks by consumers helped mitigate a record plunge in inventories. Gross domestic product shrank at a 1 percent annual rate from April to June, the same as calculated last month, [...] Analysts in a Bloomberg survey forecast a 1.5 percent drop".

It is important to note that oil prices went up about about 25% in May and June:

West texas Crude:

So consumers were spending a lot more in oil during this period. The GDP still dropped 1% with this spending and with the massive reflation program being put into place by the government. In the meantime, unemployment remains very high. Bloombetrg also says:

"Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s. Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, Labor Department data showed today in Washington. "

A higher level than forecast becomes "fewer Americans filed for claims".

Imagine what will happen when the stimulus money effects end, or when the unemployed stop spending money, or if oil drops. This in an very precarious and dangerous situation for the next quarters.

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