Q1 GDP Advance (by MacroStory.com)

By -

The first look at GDP for Q1 2011 came in at 1.77% in real (inflation adjusted) terms, a decline from 3.11% in Q4 2010 and 3.72% in Q1 2010.

Below are the highlights.

A big drag was government that actually contributed a negative 1.09% to growth driven mainly by state government and national defense.

Inventory bounced back slightly and contributed 0.93% from a prior quarter contraction of 3.42% but clearly the inventory build cycle is declining.  Should retailers grow concerned about business conditions it is probable inventory will contract in Q2.

Trade was flat at negative 0.08% from the prior quarter where it actually contributed to growth by 3.27%.  The trade deficit contracted in Q4 2010 but the first two months of data in 2011 showed this trend reversing and thus highly probable to be a larger drag on GDP in Q2.

Looking forward to Q2 2011 GDP contraction is very possible and at risk due to government, inventory or trade.  This assumes consumers stay relatively strong as in this current report although a big portion of consumer income growth was from the government.  As government austerity becomes reality the Federal government will be a big drag on future GDP and very likely a cause of the next recession.

The next recession is the scary one when you consider labor is already in a difficult position and the government will be even harder pressed to stimulate or face the risk of rising bond yields.  This is when things get scary and I am of the opinion that Q2 could in fact be the next negative GDP print.

Charts below for your viewing pleasure.





Submitted by MacroStory.com – to read more please visit - MacroStory.com