US GDP, The Greek Crisis and Other Indicators of Metal Prices Part Two

Earlier today we commented on the significance of the sovereign debt crisis in Greece and through extension, much of Europe. The de-stabilization of a key economic trading block undermines the global economy and can cause investors to move their money elsewhere (which they have undoubtedly done and will continue to do). Most of those money movements involved money pouring into bond funds but we should point out that, “commodity sector funds took in nearly $1 billion with funds investing in gold and precious metals accounting for 50 per cent of that total.”  In other words, the Greek debt crisis may certainly impact precious metals markets as well. We will endeavor to continue watching these developments carefully.

Next we turn to the US Q1 GDP numbers. Last week we did not paint a rosy picture covering underlying demand or consumer trends. We still stand by our analysis based upon the Consumer Metrics Institute data. We asked Rick Davis to comment on the latest GDP numbers and explain the gap between their data and the BEA’s GDP data. We’ve included a few excerpts from Rick’s commentary:

“As I just posted on our website that the 3.2% reading by the BEA is the equivalent of where our Daily Growth Index was on November 24th, 2009, roughly 18 weeks before the end of the time period covered by the BEA announcement. We have been saying that our Daily Growth Index leads the GDP by 17 weeks, and in this case the lead was 17 weeks plus 6 days. In the span of those extra six days, our Daily Growth Index dropped from a 3.2% growth rate to a 2.5% growth rate. A week later it was at 1.98%.

Commenting on the BEA’s announcement of a 3.6% increase in consumer spending, it’s not possible to know exactly what methodologies the BEA uses to calculate its numbers. According to Davis, “If they are measuring the same consumer spending that we saw in the second half of November (as it appeared at the front door of the factories) then their numbers are correct, and we don’t know enough to correlate the data.”

The other area that Davis commented on which we found intriguing involved the BEA claim that “spending surged for durable goods,” since (except for autos) we weren’t seeing that during the first quarter (and certainly nothing resembling a “surge”). It’s very possible that “production surged for durable goods,” and again until I [Davis] can dig into their numbers more deeply I don’t know exactly what led them to that conclusion. In any event, many of these Cash for Clunkers programs have expired and we would expect a dip in durable goods orders.

Davis went on to say, “My broader reading is that the new GDP numbers reflect a rapidly cooling recovery that was in a sharp transition from a 5.6% growth in the 4th quarter 2009 to one that will probably be at least flat (at the factory level) in the second quarter of 2010 and probably contracting slightly in the third quarter. The BEA’s comments about the total lack of price pressure and growing inventories would seem to support that.

The BEA findings concurred with the Consumer Metrics Institute Housing data, in spite of the recent incentives. Where does that leave Q2 GDP growth? We’ll call it now it will be less than the 3.2% April 30 announcement.

–Lisa Reisman

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