Q2 2008 GDP, jobless claims stink up the joint
I'm not going to sugarcoat this morning's economic data. It stunk to high heaven. A few details:
- Q2 2008 Gross Domestic Product grew just 1.9%, below the average forecast for a 2.3% rise. Q1 2008 growth was revised down slightly to 0.9% from 1%. Moreover, Q4 2007 GDP was slashed to NEGATIVE 0.2% from positive 0.6%
- Personal consumption was +1.5% in the quarter, vs. a forecast of 1.7%. Durable goods consumption was weak (-3%), while services spending was up just 1.1%, the worst reading since Q1 2001.
- Gross private investment plunged at a 14.8% rate, the worst showing since Q4 2006 (-15%). Residential fixed investment (think housing) tanked 15.6%. That’s less than the -25.1% reading in Q1, but the 10th consecutive quarter of declines.
- Business investment in equipment and software was very weak: -3.4% vs. -0.6% a quarter earlier. That’s the worst reading since Q4 2006 and it shows that businesses are following consumers and cutting back on spending.
- The “good news” was on the inflation front. The GDP price index rose just 1.1% vs. a forecast of 2.4% and a revised 2.6% in Q1. The core PCE price index rose 2.1%, slightly higher than the 2% forecast, though that's down from 2.3% a quarter earlier.
What about jobless claims? Fasten your seatbelts. Initial jobless claims soared to 448,000 in the week of July 26 from a revised 404,000 in the prior week. That was way higher than the 393,000 forecast and the worst reading since mid-April 2003. Continuing claims climbed to 3.282 million from 3.097 million, the highest since December 2003.The market reaction? So much for the good feeling engendered by the ADP surprise. Long bond futures are up 30/32 as I write, while 2-year Treasury Note yields are down 11 basis points to 2.52%. The dollar index is down 37 bps to 72.96, S&P futures are off 8 points, and spot gold is up almost $12 an ounce to $918.