Picking through a deluge of data

US GDP growth almost at a standstill.
1Q07 GDP growth came in at an annualized 0.6%. Remember that's annualized meaning that growth in 1Q07 was 0.15%, the lowest since 4Q02. Economists have put this weakness down to housing and businesses running down their inventories. However the all important consumer continued to spend which leads to the big question going forward - can the consumer continue to spend?

Consumers not yet feeling the pinch.
It seems consumers can keep spending. Last Friday personal spending was reported at a solid 0.5% in April. Consumers are seemingly unaffected by higher gasoline prices and falling house prices. Even if consumers do take a breather in the coming months as some Economists believe, they counter that any pullback in spending will be more than made up for by re-stocking of inventories and housing. Certainly you'd have to agree that inventories will pick up after being sold down last quarter but I don't buy the "we're past the worst of the housing cycle" story. Here's an interesting article full of pretty graphs from the BIG PICTURE on why the housing slump may not yet have turned the corner as some believe. I liked one particular graph so much I have reproduced it below. As you can see mortgage resets are yet to peak.


Economists are expecting between 2-3% GDP growth for 2Q07. Just remember that those same economists were expecting 2.2% GDP growth for 1Q07 just 5 weeks ago.


Employment
Us non-farm payrolls rose by 157k in April rebounding from the 88k registered in March and above forecasts of between 130 - 140k. Sounds good doesn't it? The market thought so and rallied to a record high on Friday. Here's a reason to think that the NFP numbers are, well basically meaningless. Below is a graph I stole from my friend over at Shenandoah Capital


This is the magical birth/death adjustment that is so secret the Bureau of Labor Statistics refuses to tell anyone how they calculate it. Notice the adjustment in construction jobs in an industry where people are being laid off left right and center and in which the industry players are forecasting doom and gloom for the rest of the year. Call me Alice if these figures aren't concocted in Wonderland.


PCE deflator slows but don't get excited yet.
Prices slowed to an increase of just 0.1% in April bringing down the annual rate to 2.0% bang on the upper band of the Fed's preferred range of between 1 - 2%. Whilst the Fed will take comfort from the slowdown in prices it's too early to be calling for rate cuts. In fact I doubt we'll see one this year.