The headline GDP growth was pretty good, 3.4%, but you don’t to dig deep to see the sharp deterioration in numbers.

We need to concentrate just on two series: personal consumption expenditures and nonresidential structures investments:

                      I 06  II 06 III 06  IV 06   I 07  II 07
Personal consumption  4.4    2.4    2.8    3.9    3.7    1.3
Structures            15.0   16.4   10.8   7.4    6.4    22.1

Most of the GDP components are either coincident or irrelevant indicators, except those two above.

The personal consumption is the leading indicator, because, as shown in the “Ahead of the curve” book, it leads the chain of events in the cycle and is pretty good in predicting the bear stock markets. As you can see the consumer is struggling, which spells trouble in the nearest future.

In opposite, the non-residential capital expenditures, especially in structures, is strictly trailing indicator, meaning it usually peaks when the economy is very close to recession, sometimes it even peaks during recession. The reason is, the decisions to invest into new production facilities are usually made at the top of the economic cycle. The completion takes from 10 to 30 months, so it is pretty typical to see new factories and office buildings to be opened during early recession months. So the 22% increase in structures are, actually, bad news

The economy is clearly heading into recession and today GDP release is a good confirmation