"Did the Fed have an advance glimpse at Q1 GDP?"
That was a question everyone was asking yesterday when the Fed came out with another not too hawkish statement. The answer may have been yes because moments ago the BEA reported that the US economy grew at just a 0.5% annualized rate in the first quarter, missing expectations of a 0.7% growth rate, growing at half the rate recorded in the 4th quarter, and the lowest quarterly growth rate since Q1 2014 (when the winter was blamed for a negative print). It was also the third consecutive quarter of GDP declines.
The breakdown of components was mixed: while personal consumption rose 1.9% q/q, it contributed only 1.27% to the bottom GDP line, the weakest spending contribution since Q1 of 2015. What was more troubling was the impact from all the other components:
- Fixed Investment subtracted 0.27% from the annualized GDP print, the first negative CapEx print since Q1 2011
- Inventories, as expected, subtracted another 0.33% from the annualized number, following last quarter's -0.22% decline
- Trade (net exports and imports) was another negative contribution, cutting the final number by another 0.33%
- Government was perhaps the only bright side, adding 0.2% to the GDP print up from 0.2% in the prior quarter.
Needless to say, this is hardly the backdrop for the Fed to unleash even more tightening, and we expect the market to trade appropriately, because after all bad news is bad news.
Incidentally, this is how today's latest economic disappointment will be spun by the career economists and sundry permacheerful pundits:
Excuses today from economic bulls after GDP report— GreekFire23 (@GreekFire23) April 28, 2016
1) Old news
2) Job growth is strong
3) Seasonal measurement problems
4) Does GDP matter?