Be Cautious of 2nd Quarter 2008 GDP Growth Numbers

The stock market is up on the 2008 revised second quarter GDP growth numbers just released. They show growth at 3.3% versus the original estimate of 1.9%. These numbers will not hold.

The revised second quarter 2008 GDP figures are out they now show growth at 3.3% versus the original estimate of 1.9%.  The stock market is up, elated over the stronger numbers.  And some analysts think this might be the beginning of better news. 

"The revision in second-quarter GDP to 3.3% was welcoming news," said Peter Cardillo, chief market economist at Avalon Partners. In fact, the economy might "see a rebound in the first quarter," he added.

Don't count on it.  Many economists note that the second quarter benefited from increased consumer spending from the government stimulus checks, as well as strong exports, fueled by a very weak dollar that has strengthened over the last couple of months.  Take those out of the picture, and you have pretty anemic growth numbers.

Here's something else to consider. Government stimulus is going to be tied up over the next year trying to rescue the banking industry and maybe even the auto industry.  Combine that with a national debt of over 9 trillion dollars and don't expect any major pork to come out of Washington to help get the economy going.

Exports will weaken if the dollar drops because the economies of some of our major trading partners - Europe, Japan, etc. - are weakening and may enter recession.

Expect growth to weaken substantially over the next six months as the economy tries to digest this cross-current of bad news.  Falling housing prices are sucking everything down with them and until that problem ends, anemic will be the word to describe the US economy.

What does it mean?  It means that investing in the stock market on this news is premature.  It also means that the Fed can sit on rates for the next six months so don't expect any increases in the Federal Funds rate.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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