1st Quarter GDP grew 0.6%. Not a great number under any circumstances but still not a negative number. I have been consistent in my belief that the US economy will avoid recession – for now. The problems in the economy are primarily financial problems. These problems are obviously having an effect on the economy but I still believe they won’t be severe enough to cause a recession. At least so far, that has been correct.

The doom and gloom crowd will find plenty in this report to keep them in the gloomy camp. The biggest positive contributors were exports and inventory investment. Negative contributors included residential fixed investment (down 26.7%), non residential strucutures (down 6.2%) and a drop in personal consumption of durables. Real Final Sales were down 0.2%. Imports rose which is a negative for GDP.

Those who are negative will concentrate on the inventory build but I would point out that inventories were liquidated in the 4th quarter and subtracted more from GDP than the build added in the 1st quarter. The drop in residential fixed investment shouldn’t surprise anyone but the drop in non residential structures will look ominous to anyone waiting for the commercial real estate shoe to drop. Lastly, the rise in imports subtracts from GDP but the last time we came close to a trade balance was in the 1990 recession. Our mercantilist friends in Congress may think imports are bad, but that has no economic basis.

I would not be surprised if this GDP number gets revised downward. The official inflation numbers fell from the 4th quarter rate, something that seems dubious at best. Nevertheless, to date we don’t even have one quarter of negative growth, much less the new depression that some have talked about. With the rebate checks going out soon, I suspect next quarter will be somewhat better. I don’t expect a big jump though as most of the rebates will be used to pay down debt or saved. But some of the rebates will be spent and that should keep us afloat for now. We’ll have to wait and see what happens after that.

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