Conflicting views on the GDP report

Like most other data that dismal scientists and market observers pore over in an attempt to divine the future direction of the economy, last Friday's 1.3 percent tally for real economic growth had some seeing the glass half-full while others saw half the water gone.

Squarely in the half-full camp are - surprise! - most economists.

Robert Brusca, Ph.D. , chief economist of "Fact and Opinion Economics" (whatever that is) over at Haver Analytics commented that, in this case, looks are deceiving.

Despite the low growth print of the headline, GDP was anything but weak. Consumer spending came in with a gain of 3.8% quite strong and in the 25th%-tile of all its contributions to GDP growth since 1980.
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Residential structures took nearly one percentage point from GDP growth by itself. As large as this is for such a small sector of the economy (only 4.5% of GDP) it was its smallest subtraction by this beleaguered sector in three quarters.

As noted here last week, the first quarter's 17 percent decline in residential construction could only be viewed as a positive event if you really tried hard.

During 2006, residential fixed investment declined 0.3 percent, 11.1 percent, 18.7 percent, and 19.8 percent, and given that there is no end in sight for homebuilders, this trend is likely to continue well into the 2007.

The latest edition($) of the Wall Street Journal's "Economists React" series had mixed reactions by seven economists. As best that can be determined here, the count was four glass-half-full, one glass-half-empty, and two undecided. Here's a sampling of the half-full view.

New home construction should bottom out in the second quarter, and then contribute to stronger GDP growth in the second half of the year. -- Peter Morici, University of Maryland

2007 got off to a slow start but there are reasons for optimism -- the figure was held back by weak trade and government spending in addition to continued headwinds from housing. The former items are candidates for upward revisions while the impact of the latter should diminish over time. -- Drew Matus, Lehman Economics

The first quarter estimate overstates the weakness of the economy. Probably the best estimate of the underlying growth rate of the economy is the pace of final sales to domestic purchasers ... This measure has been growing at about 2% in each of the past three quarters.-- Nariman Behravesh, Global Insight

And the sole gloomy Gus:

The year-over-year [GDP growth] rate dipped to 2.1%; the lowest since the second quarter of 2003 and now flirting with the economy's historic recession tipping point. … this markedly sub-par rate of year-over-year GDP growth implies a significant rise in the unemployment rate in the next few months. -- Richard Iley, BNP Paribas

Caroline Baum of Bloomberg viewed the report on economic growth with the skepticism that many have come to know and love.

Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success.

And Paul Kasriel at Northern Trust got a little "clinical" in his assessment.

The downside risks to output growth are increasing. There is evidence that the recession in housing is starting to metastasize to the consumer spending sector. To wit, CPI-adjusted retail sales fell 0.5% month-to-month in March and their growth slowed sharply in the first quarter vs. the fourth quarter (1.9% vs. 11.1%). Moreover, officials from both GM and Ford have indicated that April motor vehicle sales are coming in very weak due to problems in the housing market.

Overall, after all the numbers and percent changes and caveats and expected subsequent revisions, it's hard not to come back to this chart that was first shown here last Friday showing the new all-time high of consumption's contribution to GDP and its relationship to housing.


Those curves have gotten awfully steep.