Financial, Real Estate, Stock Markets Trends and Current Affairs

A quick summary of mainstream American news broadcasting shows a bright green light toward economic growth as the “Great Recession” finally disappears in the metaphorical rearview mirror.  A variety of shapes and letters have been used to describe the path of the economic recovery, most famously, the “V shaped” return of American output.  A quick look at data from the 2010 1^st quarter Gross Domestic Product report released by the Bureau of Economic Analysis on April 30^th reveals the following:

• GDP grew at a 3.2% annual rate, as compared to 5.6% in Q4 2009. As forecast by Roubini et. al., GDP growth rate would collapse once the effect of stimulus measures wore off.  I have claimed that the structural changes needed to effect true insurance against an economic relapse borne from financial contagion were never enacted, hence we never fixed the problem that caused the first crisis, leaving open the possibility for a another crisis in the very near future.
• Personal Consumption Expenditures increasing at a 3.6% rate, with non-durable goods purchases climbing to 11.3%
• Personal Savings declined from 3.9% to 3.1% (even as personal disposable income increased by $41.7 billion in comparison to $94.4 billion in Q1 2009). This gives a very likely source of the spending boost.
• Motor vehicle output contributed to 15% of the total increase in Real GDP (.52% of the 3.2% annual rate)

An initial take away from the data is that the American consumer is alive and kicking after almost two years in the gutter.  However, a look back into the makeup of US growth from  2006 shows a different style of consumer makes the recovery more of a question than a definitive event.  In regards to 2006, data from the BEA release last Friday extends back to Q2 2006 on a quarterly basis.  During a one year period spanning from Q2 2006 to Q1 2007 (arguably the high of bubble mania), personal consumption expenditures contributed to the percent change in total GDP from 93% to 1700%, while its largest positive contribution to GDP in the past year has been less than 90%.  In a sentence, the bubble expenditure behavior has not returned (and probably will not return in this generation), and those relying on its return to support business models and valuations (CRE, retail, manufacturing, advertising, etc.) will be sorely disappointed.