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The New Economic Numbers Look Terrible. But...

You can't exactly be optimistic after a second-straight quarter of 6-percent GDP shrinkage. But I think you can see a glimmer of hope below the top-line numbers.

The Times' summary of the new numbers reports that: 

Companies slashed their capital investment at an annual rate of 38 percent, and cut their inventories at a pace of $103.7 billion as they rushed to reduce their costs. Business investment in software and equipment declined by an annualized 33.8 percent, and investment in new structures was down 44.2 percent.

That's pretty grim. But then there's this: "consumer spending edged up by 2.2 percent after two quarters of declines."

I think this means more than just "some numbers were really bad, other numbers were vaguely okay." The reason is that investment seems to be lagging consumer spending in this recession. If you look at the relevant Bureau of Economic Analysis table, you see that consumer spending nosedived in the third quarter of last year, contracting by almost three percent, and then by another three percent in the fourth quarter. But nonresidential investment (housing is its own separate story) pretty much held up till the fourth quarter, at which point it swooned--and the swoon continued into the first quarter of this year. It doesn't seem implausible to conclude that companies were basically reacting to the drop-off in consumer demand, which is why you see the lag.

Now that consumers appear to be spending again, something the stimulus is likely to reinforce, I suspect the worst of the business investment contraction is probably behind us.

Again, nothing to be ecstatic over. But worth factoring into your view of the economy.

--Noam Scheiber