GDP and Employment Numbers

The numbers are out and the market reaction is somewhat expected. The ADP Employment number was higher than expected, coming in at 10K when the market expected -60K. Big miss? Well, yes, but as we have mention before, the ADP number is somewhat unreliable and at times difficult to predict. It has been right on at times, but also so far off that it loses some predictive power. The futures increased slightly on the news, but the "rally" was muted, probably somewhat due to the reliability of the number, somewhat due to other news coming out.

The GDP number showed the economy grew at 0.6% in Q1, matching the 2007 Q4 rate. The market expected 0.5%. Take that Recession! Of course, taking out the exports and trade, the GDP was negative, but this was also expected. Given that there are two more opportunities to revise this number over the next two months, and the little room for movement, a negative Q1 GDP is still possible. Inventories rose $1.8 billion, which was only a slight increase compared to the increase of $30.6 billion in Q3, and the $18.3 decrease in Q4. Certainly not as bad as some expected. The market response, while getting a short bump in futures after the news, was also muted, as with the ADP numbers.

Also of interest in the GDP report is how the PCE price gauge rose 3.5%, with the core at 2.2%. The core number continues to be in range but high enough to give the Fed a reason for pausing. Durable goods purchases fell 6.1%, while non-durable spending was down 1.3%. I am sure these numbers are not a surprise to the automotive companies. Residential fixed investment, i.e. housing, was down 26.7%. Ouch. Exports rose 5.5%, imports up 2.5%. No doubt crude oil contributed to the imports.

Back to being on hold for now while we wait for the Fed.