Why positive blip in quarterly GDP does not mean we're saved...

I have to admit that when I saw the .6% growth in first quarter national GDP I was surprised. It seemed entirely inconsistent with everything else, particularly the continuing softness in the retail sector, the default rates in credit cards and home equity lines of credit, and the utter collapse of the housing market. Luckily, Nouriel Roubini could explain it all. (click here for his full post). Here is an excerpt:

[I]f you exclude the increase of inventory of unsold goods (that moved positive after a negative figure in Q4) the Final Sales of Domestic Product were a negative 0.2%. In other terms, inventories of unsold goods added an artificial 0.8% to Q1 growth boosting it from a negative 0.2% to a positive 0.6%. So actual aggregate demand (Final Sales of Domestic Product) – the actual measure of growth of true demand - fell in Q1. And this build-up of inventories in Q1 means that the fall in GDP in Q2 will be larger than otherwise as firms will have to reduce that large inventory of unsold goods via a further reduction in production and employment.

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Fifth, both durables goods consumption and non durable goods consumption grew at a negative rate in Q1. What boosted an anemic 1% growth in Q1 consumption was a still positive growth in services consumption. Durable consumption spending is clearly collapsing (-6.1%) But the fact that spending on non durable goods is falling – something that has not happened in decades – is an ominous sign.

Also, congratulations to Professor Roubini for making the list of the top 100 Intellectuals in the world.