Small caps power on after GDP reading

Small caps continue to trade in the green midday, though off their highs of the session, after GDP was not as bad as feared. At 12:12 p.m. ET, the Russell 2000 (NYSE:IWM) was up 6.35, or 1.29% at 497.24.

Stocks are higher after a rally on Wednesday fizzled in the last minutes of trading. Trading kicked off on a positive note this morning after overseas markets rallied on the Fed rate cut and after today’s GDP report. GDP, a measure of all products and services produced in the U.S., slipped into negative territory, clocking in at minus 0.3%. The reading marked the steepest contraction in seven years and is consistent with recession readings. Despite the gloomy economic implications of the report, GDP wasn’t as bad as feared, as economists forecasted a dip of 0.5% in economic activity.

In other economic news, weekly claims figures came out and were slightly above the forecast, coming in at 479,000 versus expectations for 475,000.

“Economic activity contracted mildly in Q3 with large gains in net exports, inventory investment, and government spending being more than offset by significant weakness in consumer spending, residential investment, and business investment,” Steven Wood, chief economist with Insight Economics, said in an email. “Economic activity was also dampened in September by Hurricanes Gustav and Ike and by the strike at Boeing. However, the full effect of the credit crunch has yet to be felt. While the economy slipped in Q3 it will fall much more sharply in Q4. Our early estimate for Q4 is a decline of 3.5%.”

Consumer spending tumbled 3.1% in the third quarter, marking the first decline in 17 years. This report is yet another piece of economic data that points towards a consumer led recession. The consumer is the growth engine of the economy, as it accounts for two-thirds of economic growth; and with a soft consumer any hopes for economic recovery are short winded.  ...

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