First Quarter 2010 U.S. GDP Numbers Are In

First quarter Gross Domestic Product (GDP) was up at an annualized rate of 3.2%.  This compares to the economists’ consensus of up 3.3%.  As a reminder, fourth quarter GDP was up 5.6%.

Analysis: Recall that GDP is composed as follows:

Consumer spending + Investments by businesses + Government spending + Xports, net

The first quarter numbers are encouraging.  In particular, the Consumer component was up 3.6%.  Because this increase was larger than the overall increase in GDP, it means that the Consumer component of GDP is growing faster than the overall economy.  That same portion of GDP was only up 1.6% in the fourth quarter.  Because consumer spending is usually 70% of the economy, it needs to be robust for the health of the economy to be strong.  By contrast, the fourth quarter’s GDP was up because businesses were stocking up on inventory in expectation of recovery.  That is not a sustainable situation.  However, this quarter’s good showing from the U.S. consumer is very positive.

The good showing from the U.S. consumer is an indication that the mood of the average citizen has shifted to one of greater confidence.  That greater confidence should translate into greater business confidence and consequently should translate into businesses hiring new employees.  Therefore, we are likely to see a dent in the unemployment rate being made in the second quarter, barring any major external shocks to the economy.

An external shock would be on the order of magnitude of a massive terrorist attack; another war in the Persian Gulf, such as with Iran over its nuclear ambitions; another natural disaster of Katrina-sized magnitude; or a complete meltdown in Europe.  Of these scenarios the one that I am following most closely is the possible dissolution of the EU – a situation whose implications I have spoken about and followed on the blog going back over a year.  See the follow up post to this one for more on this subject.

Importance grade: 10; this is an investment blog so the topics I cover must always relate back to the financial markets and businesses, in general.  Chiefly financial markets track the performance of the underlying economy (usually over 2-5 years).  The economy, as measured by GDP, grew 3.2% in the first quarter.  This is very good news and marks, to my mind, the official end of the recession.

Jason