7/31/09

Good morning. GDP, which measures the value of all goods and services produced within U.S. borders, showed that (surprise!) the U.S. economy barely grew during 2008. Previous figures were revised downward to be about a third the rate previously thought, mostly because attributed to plunging home values undermining consumer spending. For all of 2008 GDP was +.4% instead of +1.1% as previously reported. More germane to mortgage banking, spending on residential construction was down almost 23% in 2008. And consumer spending, which makes up about 65% of GDP, was down .2% for the year. In the 2nd quarter of 2009, the number was actually a little better than expected, falling at a 1% annual rate. (In the first quarter GDP was -6.4%.) Still, with the contraction in the second quarter, U.S. GDP has fallen for four straight quarters for the first time since government records started in 1947. Residential investment dropped at a 29.3 percent rate in the April-June period after plummeting by 38.2 percent in the first quarter.
Lastly for economic news on this summer Friday, and the last business day of July, the U.S. Employment Cost Index rose by a bigger-than-expected 0.4 percent in the second quarter. For the last 12 months, the ECI was the lowest on record going back 27 years. On the good news side, yesterday’s $28 billion 7-yr auction went better than expected, and we saw some nice price improvements in Treasury securities and in mortgage rates. And the government announced that they had purchased over $20 billion in MBS’s last week, bringing their total for the year to about $702 billion. Have a great weekend and enjoy the weather and SeaFair.