I think you can dig a lot of interesting stuff from the GDP report. Let forget all those financial woes for a moment. It’s important what consumer is doing and what the private business is doing.

First of all the chain deflator is 2.6%, believe you or not. So whatever numbers you see are adjusted for 2.6% inflation.

Consumer cut its durable goods expenditures by .48%. The only other decline in the past 4 years was post-Catrina 4Q ’05. I think that was expected, nothing special. But now hold on to your chair. The food consumption went down by .05% and gasoline and energy by .05%. We are eating cheaper and driving less.

Is the business prepared for this decline in spending? Apparently not. In the 4Q ’07 business cut inventories sharply subtracting 1.79% from GDP. They thought that this would be enough to adjust for the slowdown. But in Q1 the inventories rose adding 0.81% to GDP. The early stages of the recession is not a good time to grow inventories. You can spot the growth of inventories in the outstanding banking credit that was growing most of the quarter, except late April. It is easy to finance unsold goods by credit as long you promise the bank that you will cut production. I suspect that the real cut in production just started in mid-April. I will examine it in one of the future posts.

GDP minus inventory accumulation is called “sales of domestic product”, which is -0.2%