Economic Data: Good News or Bad News?

April 29, 2009 11:47 am

Do you want the good news or the bad news? The bad news is that our economy has once again shrunk by over 6% in the first quarter of 2009 based on the annualized % change one quarter ago. The good news is that we are beginning to see some inflation. While generally, inflation from a consumers perspective is frowned upon, in the current economic environment however, it is welcomed with open arms. The Federal Reserve has been meeting over the past couple of days to review their current policies and you can be sure that controlling inflation while promoting growth will be at the top of their list.

gdp

Courtesy of Economy.com

The expectation for this mornings release of GDP was -4.0% vs. the reported -6.14% and the chain deflator expectation was 1.7% vs. the reported 2.9%. The chain deflator similar to the Consumer Price Index (CPI) is a key measure of inflation. CPI is a measurement of the prices on a fixed basket of good, the chain deflator has the advantage of measuring different goods over time to compensate for changes in consumption patterns and the introduction of new goods into the marketplace.

It is important to look at the components of GDP and the breakdown of what effected the reading. Fixed investments along with imports and exports fell at a staggering rate of more than 30%. Consumption rose 2.16% making it the only component of the GDP to show any movement higher from the previous quarter. On a quarter over quarter basis it will be very hard to see another drop of this proportion in the 2nd quarter of 2009 especially considering the levels of government intervention.

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