The headline is shocking: Economy in U.S. Shrank at 6.1% Rate in First Quarter (Update1) – Bloomberg.com instead of the median consensus of a 4.7% drop.
However the equity markets are not showing any signs of distress.
A detailed review of the GDP report shows that a significant cause of the lower number was the drop in inventories.
As inventories rebuild, it is likely to help GDP going forward.
Another bright spot was that consumer spending which accounts for about 70% of the economy, climbed at a 2.2% annual pace, the highest level in the past two years.
Even government spending was down; something which is likely to reverse.
The whispers are out that the GDP might actu ally turn positive in the second quarter, defying
all the dire prognostics of bearish pundits.
As I wrote lat night, if the Fed can keep a cap on treasury yields, we might see the big up this week. I am waiting for the move to happen before
I commit more capital.