Friday, April 27, 2007

GDP numbers -- what impact housing and exports have 

The first quarter GDP figures are out, and a 1.3% growth rate looks pretty bad, almost half of the previous growth rate. But what interests me is the breakdown in contributions to GDP growth. Personal consumption held its own, contributing 2.6 percentage points to GDP growth this quarter versus 2.9 last period. So household spending has been fine. Residential investment knocked off almost 1.0 percentage points from that, but that's less than was in the fourth quarter. Business investment contributed a little more of the decline. Much of the news seems to be focusing on housing.

What really caught my eye was the contribution of net exports, which swung from contributing 1.6% to growth in the fourth quarter last year to knocking off 0.6% this year. Reuters at least touches on that. That swing had more to do with slowing exports than increased imports. This may stay the hand of the Fed in raising interest rates any time soon (higher interest rates increase exchange rates and make our exports less competitive.)

Worth noting: When this number is revised (and there will be two such revisions) the trade figure is the one that changes the most. So I expect this GDP estimate to be rather volatile to trade revisions.