This article is a guest contribution by David Rosenberg, Chief Market Economist, Gluskin Sheff, in Toronto, Canada.
U.S. real GDP was clipped to a +3.0% annual rate in the first revision to the Q1 data from +3.2% (and the actual +5.6% print for Q4). Outside of inventories, practically every category was taken down with commercial construction (now - 15.3% SAAR from -14.0%) and capex (+12.7% from +13.4%) the major culprits. What this means is that real final sales growth was shaved to a mere 1.4% annual rate from 1.6%, not to mention the 1.7% in Q4. Averaging out the past four quarters, real final sales have averaged 1.3% at an annual rate, which represents the weakest post-recession recovery in demand on record – it is usually running closer to a 4% annual rate at this juncture, which is alarming in view of all the bailout, monetary and fiscal stimulus in the system.
he equity market may have only figured this out, but outside of inventories, the U.S. economy is barely growing and is actually stagnant in real per capital terms. We are not sure how an 80% rally off the lows could have ever been considered by anyone as being consistent with such an anemic recovery in the real
economy. And, if you are wondering how on earth the yield on the 10-year Treasury note can possibly be anywhere remotely close to 3%, it is because that is exactly where the trend in nominal GDP is — and we are well past the peak of all the government stimulus efforts. Believe it.
As Chart 1 below illustrates, we are still in the throes of a deflationary experience. Price per unit of production on the nonfinancial sector declined at a 1.5% annual rate in Q1, the fourth decline in a row and down 1.9% year-on-year, which is the steepest decline since Q1 1950.
