The United States Q2 advance GDP reading came in at 2.4% (2.6% was the analysts consensus expectations) and personal consumption was 1.6% (2.4% was the analysts consensus expectations). What was really odd was the revision to the Q1 GDP which went from 2.7% up to 3.7%, and Q1 personal consumption was revised much lower, from 3% down to 1.9%.
With or without the revisions to the Q1 GDP, the data today shows the economy is slowing. If we use the Governments own revised Q1 numbers than the economy slowed significantly going from 3.7% down to 2.4% in just three months.
Benchmark revisions painted a more bleak picture of the Great Recession as the US economy shrank 4.1% from Q4 2007 to Q2 2009 versus the prior calculation of a 3.7% drop. Household spending fell 1.2% in 2009, twice as much as previously projected and the biggest decline since 1942.
The equity markets reacted with even more indecision as evidenced by today’s trading action. What was not indecisive was the bond market action with the 10 year yield dropping over 3% today. Remember, the bond market is always the smarter bunch, and the bond market is simply not liking the economic outlook here.
The divergence between the S&P 500 and the 10 year yield was very pronounced today. What does this tell us about the near future? First it tells me that deflationary forces are very much still in force and this is continuing to keep the equity markets confused at best. Right now we are just seeing the same pattern of low volume up moves and higher volume down moves in the major indexes.
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