Anticipated GDP Slowdown: Blame it on the Weather?

The initial estimate of GDP for the first quarter is schedule to arrive on Friday. The consensus forecast calls for a 2.0% annualized rise, according to TheStreet.com. That would mark a slowdown from 2.5% in last year's fourth quarter.

Still, 2.0% wouldn't be the end of the world. But after reading yesterday's 8.4% slump in existing home sales for March, might there be a rationale for thinking that the economy's growth will be slower than the crowd thinks?

Indeed, the fall in real estate transactions last month brings the total home sales to its lowest since June 2003. The National Association of Realtors, which crunches the statistic, tried to put the best face on the news by blaming the weather on the slump. In addition, comparing this year's 1st quarter home sales to the year-earlier period paints a brighter picture.

“For the last couple months we’ve been expecting a weather ‘hit’ on home sales finalized in March," said David Lereah, NAR’s chief economist, in a press release that accompanied the numbers. "But looking at overall activity in the first quarter we see that existing home sales averaged 6.41 million – a figure that is moderately higher than the sales pace during the second half of 2006." He went on the note, “We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers."

But none of this sways another dismal scientist from embracing a gloomier view. "Though lower sales were widely expected to offset the unexpected strength of earlier months, the breadth and depth of this decline leaves little doubt that the housing sector remains in the doldrums with a turnaround not yet on the horizon," wrote David Resler, chief economist at Nomura Securities in New York, in a note to clients yesterday.

Tomorrow brings updates on new home sales and durable goods, along with the Fed's perspective on the regional economies via its Beige Book report. Then on Thursday, there's another take on the latest weekly jobless claims. But the big news promises to come on Friday with the GDP number.

While we're waiting, here's how some of the relevant numbers stack up as we write. As the table below suggests, there's reason to think that adjusting expectations down carries some weight at the moment.

Comments

[Bruce Merri...:]

You guys love to look at every day to day up or down and extrapolate that to infinity...comparable to pulling a plant up by the roots every 5 minutes to see how iti's doing! About 98% of our some 29 million incorporated businesses have less than 100 employees, but now account for 2/3rds of the U.S. GDP. The data yopu are looking at comes from only about 1% of this number, accounting for (a declining) 1/3rd of the GDP. Big companies don't innovate; big companies don't create many jobs;80% of the original Fortune 100 aren't there; and at the current rate of attrition, probably 80% of the curent list will disappear overthe next decade. Like our pathetic job data, the rest of our accounting process (as Peter Drucker kept saying) is 200 years out of date.

Bruce

2007 Apr 25 09:08 AM

[Sr. Pessimist:]

Yep. Let's take a lesson from Canada. They have a robust economy that has not yet shaken. Go up there and you see small shops all over the place. It's easy to start a small business out there. The proof is in the number of different names of small businesses you see in Edmonton, Alberta. Small businesses bring life to an economy. Big businesses often lose their right to exist. The value is in the individual, not in the institution that gets away with extorting him of his work.

2007 Apr 25 10:37 AM