Friday, May 29, 2009

Revised GDP Down 5.7%

First quarter GDP was revised to minus 5.7%, which is less of a contraction than originally estimated, but slightly higher than the minus 5.5% anticipated by economists. The market is interpreting this bit of data as positive, as we've already moved on to anticipating a massive V-shaped recovery beginning in the third quarter of this year. This bit of optimism is based on what exactly? A near certainty of 10% unemployment by the end of the year? The continuing parade of cheery news including record low new home sales and the record number of homes facing foreclosure? An auto industry facing massive downsizing and restructuring? The pending implosion of the commercial real estate market? No. One month's worth of "surging" consumer confidence, and all of those other nebulous "green shoots" sprouting up everywhere. We're in a market where bad news is ignored and slightly less bad news is bandied about as a sign that we're going to return to growth in the third quarter. You've got to try harder than that to convince a curmudgeon like K10.

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