Is The Latest GDP Report A Sign The Recession Is Over?

The latest U.S. GDP report was released this morning and came in at 3.5% (advance estimate GDP).

News articles started hitting the press, adding to recent articles stating that the “Recession is Over!”.

Previously, the most recent 4 quarters of data had shown contracting economic activity, so the new data is welcome news.

Or is it? In reality, there are many people that want to know what the future holds, not what this report is showing.

For anyone trying to figure out if the stock market has finished declining and will move higher from here, one thing to remember is that the GDP data is lagging data. Meaning, the current data is from the most recent ending quarter. So is this data a sign of better things to come?

Here’s a chart showing the last time the GDP data was at or above the current reported 3.5%:

You can see that the last time the GDP data was at or above the current data was back in the third quarter of 2007, at 3.6%. Coincidentally, this was at the last major top of the market. Something to think about.

Headlines are often misleading so let’s take a closer look at some of what’s in the data:

• Motor Vehicle output added 1.66% to the final numbers benefited by the “Cash for Clunkers” program.
• Noted in the report is an increase in personal consumption expenditures and federal government spending.
• Later in the same report, although federal government spending contributed to the final data, it has decreased from the previous quarter.
• Prices paid for gross domestic purchases increased 1.6% in the quarter. That was with oil prices lower than where they are now.
• Current-Dollar Personal Income- Decreased.
• Personal current taxes- Increased.
• Disposable Personal Income= Decreased.

Personal consumption seems to have added the big boost to the numbers here. So far the market likes what it sees, but I can’t help to think about some of the other information in the report which shows decreasing income, increasing taxes and reduced government spending including government programs.

Here’s a link to the latest GDP report: BEA Advance GDP Report for the third quarter 2009.

Just remember that the actual number reported is for the recent quarter, not the future quarter.