GDP Data Looks Gloomy

First-quarter growth weakest in over 4 years – Yahoo! News

U.S. economic growth in the opening quarter this year was the weakest in more than four years as businesses sold off inventories and Americans imported more foreign goods, the government reported on Thursday.

Tell me about it. There wasn’t much to like in the report.

Growth in corporate profits is evaporating. Given that the reasonableness of current P/E valuations is dependent on the historically high “E” this should concern stock market participants.

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Corporate profits also, not surprisingly, tend to be correlated with business spending on technology. Hopes for a Microsoft (MSFT - Annual Report) Vista-inspired tech spending resurgence appear to have been dashed. While bulls argue that lower profits will require tech investments to spur productivity, the recent trend is for companies to do more with less. Therefore, I’d argue that there will be a smaller share of the smaller profit pie going to tech.
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While consumption spending did rise as a contributor to GDP, the drag on profits may mean more layoffs are in the pipeline, which in turn could put pressure on that consumption.

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I’ve said before that betting against the American consumer is always a long-shot. At the same time, though, I’d be inclined to at least hedge any bet on continued strength.

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Topics: Economy, P/E Waves, S&P 500 (SPY), Stock Market | RSS

2 Comments on “GDP Data Looks Gloomy”

  1. [...] Since there weren’t really dramatic revisions from the prior release (which I discussed then) there are few additional comments to make.  The main one remains that profits are growing single-digit year/year. The current rally is on the back of investors being willing to pay more for each dollar of earnings. For more information, see all articles on: Economy, Stock Market, GDP This article is for entertainment purposes only and reflects the author’s opinion. It is not a solicitation or advice to buy or sell any securities mentioned. Always consult a qualified advisor before making investment decisions. [...]

  2. [...] to do more with less, and those types of investments are about the only thing companies will loosen up the purse strings for. But with EMC now getting the opportunity to give up a tiny slice of VMWare while recouping [...]

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