Third quarter GDP report shows GDP growth appreciably slower than I believe about anyone anticipated -- +1.6% vs. previous quarter ( i was anticpating 2.0% vs previous quarter). By my data that puts Real GDP growth at 2.9% on a year-over-year basis. This is the first report of real GDP growth Y/Y below the 3.1% nominal average since 3Q03.
While I suspect this number will get revised upwards over the next two months, and mat get back up to near 3.1% Y/Y, this is a sizable drop.
My suspicion is that this will spook the markets until they see something different and more positive. I expect defensive stocks will be favored, although that might be just less hammered. Utes, health care, staples may be favored vs. tech, industrials and discretionary.
This is kind of funny. The drop is due to the meltdown in residential construction. Residential construction contributed a -17% to the number. The others were positive. Your surprise at the low number mirrors the surprise of many pundits just about every time a residential housing metric is released. They are always surprised that it is as bad as it is. These are the same pundits that told us the bottom was in the housing market and the bad news was already build into the stock price. They were just plain wrong.
The real question is to what degree the housing meltdown will affect the rest of the economy. Obviously it has had a negative effect on lumber, furniture, home supplies, even Catepiller and Ingersol Rand. I listened to Pultes conference call yesterday and it was abysmal. They have laid off 1400 white collar workers, they are losing money on land options, sales have plummeted, the price of houses is taking a dive - for any other business the stock would have tanked long ago. But HB stocks have actually gone up. I have to confess I don't understand the stock markets reaction to such a dismal landscape.
This number could be misleading if the impact of housing is minimal.
But again, I can't make that call. It is too complicated.