Dean Baker With Bearish Reading Of U.S. 1Q2009 GDP Advance Estimate?

Dean Baker has bearish notes to the "green shoots" in the advance estimate of 1Q2009 U.S. GDP going forward. As I linked to the post by Barry Ritholtz yesterday, there were some issues that improved the bad reading. As Barry noted:

GDP would have been even worse, if it wasn’t for how fast imports have plummeted; They are falling faster than exports, perversely creating a appearance of relative improvement . . .

and

• Consumer spending climbed at a 2.2% annual pace in Q1 — the most in two years.

Dean Baker writes today:

Inventories will not keep falling and in fact will likely increase in subsequent quarters. That is good news for the economies of Japan and China and other major exporters. The bulk of the increase in inventories will be met by imports, not domestic production. In other words, inventories will not be the force that turns around the U.S. economy.

So, in fact the "green shoot" reading may increase imports, so reducing the GDP growth in 2nd quarter. Another surprise for consensus economist was the rise in consumer spending, whereby Dean Baker notes:

Many pointed to this rise as an increase in consumer confidence.
Okay, so how does this increase in confidence fit with the rise in the savings rate from 3.2 percent to 4.2 percent? That won't work for most definitions of 3.2 percent and 4.2 percent.
Higher consumption can't be explained by rising income either. Income fell in the first quarter. So, where does higher consumption come from?
The answer to the mystery is lower taxes and higher transfers, most importantly the big cost of living increase in Social Security payments that seniors got this year. (The cost of living adjustment is based on the 3rd quarter CPI compared with the prior year. This included the run-up in gas prices, but not the subsequent fall.)

This raises the question of sustainability of consumption. So, keep eyes wide shut ...

We have the release of US Personal Income and Spending data for March 2009 in 90 minutes. BNP Paribas has the following to say:

Personal consumption Is forecast to fall significantly in March after having increased in the previous two months. Retail sales fell 1.1% in March, with declines in all categories except food and healthcare. Services are expected to grow very slowly in March, leaving overall consumption down by 0.3% with most of the declines in durable goods. The early spending gains in this quarter, however, will cause consumption to grow in Q1 for the first time since Q2 2008. Personal income is also expected to decline in March, by an estimated 0.2%. Wages and salaries will probably decline slightly faster as jobs and hours plunged in March. As a result, income will have increased by only 0.3% in the past 12 months. Consumption will have declined by 1.2% in the same period. In real terms, the magnitude of the declines in personal income and consumption are more devastating. In the past 12 months, real income has fallen by 0.4% and real consumption by 1.4%. In March we estimate that the personal consumption deflator will be 0.7% y/y. The core consumption deflator is forecast to rise by 0.1%, keeping its y/y rate around 1.7%. The greater decline in consumption than in income in March should keep the personal savings rate around 4.3%, its Q1 average. In comparison, the savings rate rose to 1.8% last year, from near zero the year before.