Numbers Don’t Lie (1st Quarter GDP)

This week GDP numbers for the first quarter came out and the numbers came out higher than expected ( Annualized rate of 3.2 versus an expectation of 2.5%). MarketWatch published an article on Friday and a couple of good takeaways worth mentioning are:

1. GDP Growth was driven by inventory building and trade
2. State and Local Government spending jumped 3.9%
3. Fed rate cut might be in question

This growth rate hasn't been seen since 2015, but despite the rosy headline, the devil was in the details. Because of the pending trade sanctions, companies pulled forward future purchases in 2018 to ensure that they had enough product coming into 2019, hence muting our typical trade deficit.  The Government shutdown also played a significant part because of the compensatory payments that needed to be made to Government employees.  The economy has been doing well this year (S&P500 up over 10% YTD), and with other countries turning the corner (China in particular) in the second half of the year a Fed raise might be needed more than a Fed cut.  If anything the IMF has predicted better global growth this year than originally expected.

For the GDP calculation, Consumer Spending makes up 70% of the equation and from the article and this blog post, I haven't mentioned anything of substance about this input. Retail sales and housing purchases did rise in March which are both good signs. Retail sales had been flat since July of 2018, and in March people brought houses at the fastest rate since November of 2017.  While these are positive signs, one month is hard to get excited about. It seems like recession fears might have been subdued but they are still on the horizon.

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