Comstock Partners, Inc.July 31, 2002
We Hate to Say "We Told You So"
No doubt that most of our viewers heard about the latest quarterly GDP and revisions of past GDP statistics. This news is very reminiscent of what we said in past comments. On 3/12/02, “Is That All There Is” we said, “Remember, we just experienced the bursting of this great bubble that was accompanied by the longest economic expansion in history and the greatest capital-spending boom of all time. It is very hard to believe that this would be followed by the mildest recession in history and a benign decline in the major stock market indices.” Before the first quarter GDP numbers were released we predicted in these same daily comments dated 4/24/02 in, “EERIE Environment for Recovery”, that "we expect this number (1st qtr GDP) to be the highest reported this year and could be the highest by quite a bit". And we ended the comment by stating, "doesn't the weak performance of the market and other unusual things that have just occurred make this recovery seem a little eerie, and maybe even portend a false start to the economic recovery?" On 5/3/02 we wrote in the daily comment, “Economic Deterioration Continues”, about the revisions that would take place today. We stated, “the current release showing a turn toward growth must be taken with a grain of salt. Furthermore next month’s revisions are likely to be greater than usual since the BLS will be making its annual benchmark revisions based on updated seasonal adjustment factors.” The news today is that there was indeed a recession and the recovery is struggling. Maybe we will find that rather than debate the “double dip”, we will discover that the first quarter was an abberation that was strictly related to the change in inventories. In fact, the second quarter would have been negative if it weren’t for the difference in inventories, as consumer spending just grew at 1.3%. Second quarter GDP growth was just 1.1%, way below expectations and way down from the first quarter. The first quarter was also revised down to 5% from 6.1%, and 2001 now shows three straight quarters of negative growth. The Chicago PMI (barometer of Chicago business) plummeted 7 points from June and is off 10 points from its unexpected spike in May to 51.5. The index has been positive for 6 consecutive months, but is now losing steam and foreshadows a weak reading for tomorrow’s release of the national purchasing managers survey.