The Dow Jones Industrial Average is down 150 points (at 10:15 a.m.). I guess that it was to be expected as we woke up to news that Goldman Sachs (NYSE: GS) downgraded investment banks. Wall Street is also worried about the outlook for tech stocks after both RIM (NASDAQ: RIMM) and Oracle (NASDAQ: ORCL) reported quarterly results Wednesday, giving a tepid outlook.Then, final revision of first quarter GDP were released an hour before the open, and while growth was revised upward to 1% from an anemic 0.6% original estimate, the components weren't very encouraging. Consumer spending, which accounts for 70% of GDP, grew by 1.1%, the smallest gain since the second quarter of 2001, which was during the last recession. Also, corporate profits after taxes fell 7.8%, a higher decline than previously estimated. Housing, as measured by residential fixed investment plunged by 24.6%.
Also, looking at inflation, the price index for gross domestic purchases, a closely watched measure of inflation, rose at a 3.6% rate, up 0.1 percentage point from the preliminary estimate. Excluding food and energy, the price index was up 2.3%, which is above the Fed's preferred range of around 1.5% to 2% for that index.
One bright spot, as it has been awhile now, is that exports rose 5.4%, which was much better than the estimate of 2.8 percent in May.
Moving to the labor markets, weekly initial claims, which were also reported at the same time, were unchanged. But -- and a big But it is -- the better indicator, four-week average of new jobless claims, was at the highest level since October 2005 in the aftermath of Hurricane Katrina.
Then, at 10:00 a.m., existing home sales showed a 2.0% increase in May, while median home price was down 6.3%. High inventories continue to put downward pressure on home prices and with lenders less willing to lend, prices will continue to adjust.
So what does this all mean?
First, it means that the U.S. has managed to avoid a contraction in the first half of the year, as second quarter GDP will undoubtedly get a boost from the government rebate checks as we've seen in recent retail numbers. In fact, due to continuing strength in exports GDP may show growth between 1.5% and 2% in the second quarter, economists say.
But this is on paper.
A Bloomberg/Los Angeles Times survey shows that "Most Americans say they are feeling the pain from rising gasoline prices and many are tightening their belts." Their houses have dropped in value, their job security is faltering with rising unemployment, the grocery bill is mounting, and they can't borrow more to support them at the moment.
The economy may be growing at some rate measured by some economists, but Americans would beg to differ.
Before the bell: Stocks ready to climb on hopes of continued low rates
Why do we have a weak dollar?
Holiday hiring slow for retailers
Reader Comments (Page 1 of 1)
6-26-2008 @ 12:35PM
william lindblad said...
Put your money on Bloomberg/LA Times. They forgot to mention that default is on the rise on utility bills (USA Today).
The government unemployment report is thought by many to be about 1/2 of reality.
Reports from the NAR have never been confidence inspiring as they have too much of a vested interest to be taken at face value.
The people of this country have a different opinion and no reason to fabricate.