GDP...Yawn!

Just a few notes before I head off for a little R&R for a few days.

GDP for Q2 came in at 2.4%.  The majority of the growth seen in the report was mainly increased government spending and inventory builds as manufacturers ramp up inventories to get ready for our incredible economic recovery(good luck with that!).

The reality here is that the consumer continues to sit on the sidelines.  If you take a look at the consumer growth index it confirms the continued slowing of the US consumer:

My Take:

As you can see above, the distortion between the BEA's GDP growth and the actual private consumer demand in the economy has never been larger in the past few years.  This does not bode well for the future.

If this trend continues, manufacturers will slash production as the expected recovery never materializes.

The Chicago PMI came in higher than anticipated which shouldn't be a surprise when you look at the inventory builds in the GDP number.  The builds were responsible for about 50% of the GDP growth in the quarter..

Q1 GDP was revised downward to 2.7% from 3.2%(what a shocker).

So let's recap here:

The last three quarters of GDP growth are 5.6% in Q4 2009, 2.7% in Q1 2010, and 2.4% for Q2 2010.  Anyone noticing a trend here?

This is one heck of an impressive recovery!(scarcasm off)

The Bottom Line

The GDP numbers are pretty much a joke at this point.  The bottom line here is private demand is nowhere to be found.  The market was down on this report but has since rallied after better than expected Chicago PMI and consumer sentiment reports.

I don't see this holding by the close.  We probably end the day flat give or take a few points.  Wouldn't be shocked if we ended down pretty sharply.  The bond market read right through the BS filled GDP report.

Yields once again plummeted below 3% on the 10 year this morning.

Folks, if the economic recovery doesn't take hold companies will slash inventories which will most likely put GDP back in the red and into a recession. 

The leading indicators on the consumer show that demand has once again fallen off a cliff as seen by the chart above.

All I can say here is don't believe the hype and raise cash!

Disclosure:  No new positions taken at the time of publication.