Friday, April 27, 2007

To No One's Great Surprise....

....except maybe the sheeple on the right...:
WASHINGTON (Reuters) - Weaker exports and a steady slide in spending on homebuilding helped slow U.S. economic growth to its softest pace in four years during the first quarter, the Commerce Department reported on Friday.

Gross domestic product or GDP, which measures total goods and services output within U.S. borders, increased at a weaker-than-expected 1.3 percent annual rate in the three months from January through March.

That was a little more than half the fourth quarter's 2.5 percent rate and well below the 1.8 percent rate that Wall Street analysts had forecast GDP would expand. The last quarter when growth was weaker was in the first three months of 2003, when GDP expanded at a 1.2 percent rate.

Growth has been slowing since late last year under the impact of a hard-hit housing sector where rising defaults are taking a toll on the subprime lending sector and causing builders to scale back until inventories of completed but unsold homes are reduced.
The situation is worse than you might imagine.

If you factor out export businesses and products, GDP actually dropped in the fourth quarter (exports grew 10.6%, meaning the domestic economy was off in the fourth quarter, reflected in consumer spending in December and the housing markets).

In the first quarter of 2007, export businesses actually had a real decline of 1.2%. Let's call it flat for jazz sake, but this was the first time exports hadn't increased since the second quarter of 2003.

So we're looking at two components of a "perfect storm" of weakness: flat domestic growth and flat export growth.

Consumer spending increased 3.8% in the first quarter which is a good sign, until you realize that much of this increase was caused by inflationary pricing, with energy prices rising as the extended winter remained cooler than expected.

It's safe to say the economy is on shaky ground right now. Consumer and governmental debts are at all time highs, and while consumer spending is still going on, one wonders how much longer that can be sustained. Wages are stagnant, net worths are slipping, and consumer "wealth" (a true illusionary misnomer), is rocky and unstable.

The rubber band is stretched very thin right now. And gas prices are already rising ahead of the summer driving season.