Thursday, May 29, 2014

Updated US GDP Analysis -- Mind the Shrinkage

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.


  1. The market's rallying because of the strong jobs data out this morning. Q1 GDP is about the most backward-looking datapoint that you can find! Nobody trades based on what stopped happening 2 months ago.

    You can see the Q1 GDP weakness in $TRAN, whose was horrible in Q1, because of the weather (unless you doubt the word of the owner of BNSF, who explicitly said his company took a big hit from weather). $TRAN's 5% pop since April indicates the US economy has accelerated since. And a <300k job print shows significant labour market tightening.

  2. Good point on the jobs data. But I think this kind of data makes the Fed more cautious about tightening. And that makes traders happy.

  3. Bloomberg: "Stockpiles grew at less than half the pace than in the final three months of 2013, lopping 1.6 percentage points off GDP while businesses cut back on investment." There's your culprit right there.