1st Quarter GDP To Be Much Weaker

Earlier this week the Commerce Department issued their second revision to fourth quarter GDP growth up to 3.0 percent from the initial estimate of 2.8 percent.  This compares to 3rd quarter GDP of 1.8%.  The upward revision to the percent change in real GDP primarily reflected an upward revision to nonresidential fixed investment, a downward revision to imports (which is a plus to GDP), and a slight upward revision to personal consumption expenditures (PCEs).  This appears to be all good on the surface until you start looking underneath the headlines.

As we discussed in our original post on 4th quarter GDP "There was an incredibly large surge in Q4 in the business investment category.  Railroads and trucking companies have recently reported upticks in tonnage hauled.  Likely, we will begin to see a reversal in the coming months as the surge in activity was primarily attributable to a rush to purchase capital goods ahead of the expiration of the100% bonus depreciation allowance.  That surge, which has now pulled forward future capital expenditures into 2011, will likely leave a void in coming quarters.  Companies have been boosting 2012 views based on the past couple of months of activity - this could be a very dangerous trap for investors."

As we have stated many times recently, the pickup in the 3rd and 4th quarters in the economy was not from a resurgence of real economic growth.  The pickup came from the interruption in manufacturing that occurred post the Japan ...