U.S. Economy: Is It Time To Really Start Worrying?

You can't help but worry a bit more about the economy in the second half now, as the market's focus shifts from a weaker-than-expected GDP report to the Friday jobs data. GDP revisions also show a recession may have started in the fourth quarter of last year.

Economists had expected Q2 to show growth of 2.3 percent with a strong boost from the stimulus rebate checks, but that number came in a bit lighter, at 1.9 percent. GDP was also revised to a negative number for the 2007 fourth quarter--a contraction of 0.2 percent. That was the first decline since 2001.

Wall Street has been expecting the coming third and fourth quarters to be weaker than second quarter so we'll be watching to see if economists start to trim those forecasts based on the Q2 result.

Deutsche Bank chief U.S. economist Joe LaVorgna's Q2 GDP estimate for 1.5 percent growth was among the lowest on the street, but close to the actual report. I asked him about that negative fourth quarter number. "It makes a little bit more sense. We could revise down to negative first quarter too," he said.

Two quarters of negative growth would mean the economy entered a recession but we won't know that for a few months.

Stocks took a hit this morning from that GDP number and also the surprise spike in jobless claims. Weekly jobless claims came in at 448,000, an increase of 44,000. That number casts a shadow ahead of the July jobs report, due at 8:30 am tomorrow. LaVorgna said he dug into the number and it appears that some of that surprise increase came from claimants who were getting extensions of unemployment benefits, not new claimants.

The July jobs report is expected to show a decline in non-farm payrolls of 75,000 and an unemployment rate of 5.5 percent.

Story Stocks
It's not all gloomy out there, and today's deal news might have given the market a bit more traction without the disappointing economic news.

That Bristol-Myers bid for Imclone this morning, on the heels of Roche's bid for Genentechis another sign M&A is alive and well, at least in the drug/biotech arena. Bristol bid $60 but that stock is flying above that bid.

Also check out ExxonMobil. It reported the biggest profit ever for a U.S. company. Its income for the quarter was $11.68 billion or $2.22 per share, but it came in below expectations. As UBS' Art Cashin told me yesterday, Exxon can't help but lose for winning. Big profits translate into big criticism with gasoline at record levels. Of course, Wall Street is not the place where you hear that criticism. It is too busy punishing Exxon because those profits were not bigger and the stock is getting slammed.

What to Watch Today
It's a busy day for economic news. Former Fed Chairman Alan Greenspan will be talking to Maria Bartiromo on "Closing Bell" today. Treasury Secretary Hank Paulson speaks at 1 pm on the economy and the White House economic team was talking to CNBC's Steve Liesman this morning.

Cramer's New Rant
"Yes, I called the bottom," Jim Cramer shouted on "Mad Money" last nightas he carved up his rubber bear collection in a meat slicer. I am paying close attention to this call because it was just a year ago (July 20, 2007) when Cramer warned everyone to bail out of stocks. He was sooo right then. It will be interesting to see if he has done it again.

Questions? Comments? [e-mail]