On May 5, I posted about US GDP. Back then, everyone was concerned about potential GDP shrinkage of 0.1%. Turns out it was just revised today to a drop of 1%.
In fact, this was lower than the consensus estimate of a 0.5% decline.
We are hearing many excuses for the shrinkage. Many economists are blaming the weather. In addition there was there was a drop in private inventories. And that certainly subtracted 1.62 percentage points from growth, way up from the 0.57 percentage points in the first estimate.
At the same time, personal consumption expenditures growth was revised slightly higher to 3.1% from 3.0%; however, that only bumped up the contribution to GDP to 2.09 percentage points from 2.05 percentage points.
Real final sales of domestic product, which excludes the change in inventories, rose just 0.6%.
Bottom line: First quarter economic activity was a disappointment that can't be explained away simply by the weather.
More importantly, how is the market taking the news? Quite well, actually, with stocks rallying and bond yields dropping like hot turds out of the wrong end of a horse.
Why is the market rallying? Because the shrinkage in GDP makes it less likely that the US Fed will stop the easy money party anytime soon. This is a theme I have been exploring with Gold & Resource Trader subscribers for the past two weeks, and we are investing accordingly.