GDP

After a surprise negative print on the Q4 GDP yesterday morning they spent all day on TV telling me how the underlying numbers look pretty good.  I am sure the few recession camp people will be out there screaming I told you so.  I think GDP is the most highly revised data series there is for the economy and is pretty much useless in real time for figuring out where the economy is going.  Here is an interesting chart breaking down some of the components for those that want to dig into it.

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I am not going to say the negative print means we are in a recession already for sure.  I think that probably is likely because of the manufacturing data we have been seeing.  However, in the current situation, I think there will be future economic slowing because of the negative print in the press.  Let me try and explain why.

This chart is of consumer spending as a percent of GDP.

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Consumer spending makes up over 70% of GDP these days.  Obviously anything that lowers consumer spending will negatively affect GDP.  This next chart puts the consumer mindset into historical perspective.

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The latest consumer sentiment survey took quite a plunge.  More importantly to me, it never got very high after the last recession.  Consumers have been somewhat suspicious of the economy the entire recovery.  This happened in the early 90s also.  However, by the mid 90s the economy and the stock market took off and so did consumer sentiment.  In the weak mindset of today they now have to deal with losing 2% out of their paychecks.  On top of that, they will also be reading about a negative GDP print.  I could be wrong, but I believe this combination will cause consumers to pullback on their spending going forward which will have a negative impact on the economy.  This may be enough to ensure we go into a recession even if we are not already there.

Bob