What you don't hear about today's revised GDP from the financial media or TV talking heads
by Bob Bronson, Bronson Capital Markets Research. May 27, 2004.

Today's revised GDP for the first quarter, whose midpoint was 2.5 months ago, showed a higher seasonally-adjusted annual growth rate (SAAR) primarily due to sharply higher inventory accumulation, which increased 84% from $15.3B to $28.2B. This large increase undoubtedly borrowed growth from the second quarter, which is already two-thirds complete.

Overall business spending was revised down to 5.8% SAAR, which is less than half of its 12.8% peak growth rate in 3Q03. This is consistent with our "last gasp" spikes or peak growth rate calls since then, which historically and fundamentally accompany major stock market tops. We continue to expect further deterioration in the growth rate of business spending during the immediate quarters ahead.

Consumer spending, which accounts for two-thirds of all US economic activity, was only 3.9% SAAR, or a whopping 30% less than the 5.4% SAAR for the other one-third, or the non-consumer sectors. This relatively weak consumer spending included the stimulative effects of lower tax rates and one-off higher tax refunds. It fully confirms our expectation that slower spending from over-extended consumers will lead next year's recession, which will be the second during this K-Cycle Winter, or deflationary economic BAAC Supercycle Bear Market Period.

The following table is Exhibit A from our SMECT business and stock forecasting model, which was developed years ago and is updated and available on this website. [SEE]

Also NIPA corporate profits, before and after tax, declined from the previous quarter. And when adjusted for increased outstanding shares, especially for offsetting the dilutive effect of largely non-expensed employee stock options (ESO), the past four quarters of GAAP, as reported, earnings-per-share (EPS) for the S&P 500 of $51.90 have only rebounded to 3.5% below their peak of $53.70 in 3Q 2000. Even optimistically-inflated "operating" EPS of $57.89 have only exceeded their similarly dated peak of $56.79 by 2%. Core EPS, which include ESO expenses and exclude pension expenses, are currently only $47-$48 per share.

This is fully consistent with our expectation that much slower growing corporate profits are starting to disappoint both perma bulls and new bulls alike, and the groupthink concern will become very significant as the economic rebound begins to fail and they reluctantly come to realize that peak-to-peak corporate earnings will not be growing at double-digit rates over the next few years.

© 2004 Bob Bronson

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Bob Bronson | Bronson Capital Markets Research | Email