Wow-GDP Unexpectedly Strong

As happens on a continual basis forecasters of economic data were wrong–GDP did not crater in the 1st quarter even though some forecasters had it forecast to come in as low as 1% growth. The 3.2% growth reported (this just the 1st reading–there will be a couple revisions down the line) was above even the most optimistic forecasts.

The other thing you can be certain of is that folks like us like to ponder what will happen to interest rates if a high (or low) number is reported–almost always wrongly. I speculated a number higher than 3% would send rates higher–so what happens? The 10 year treasury fell by 2-3 basis points on the announcement.

So this announcement has made the FED look like smart folks and has set off talk of a need for a potential interest rate hike later in the year–maybe, but who really knows–no one!

For now I will just continue to enjoy the relatively Goldilocks markets and interest rates, hunt for bargains, build our base investments (the sock drawer issues) and do some short term flipping and let the talking heads dissect every little detail.

10 thoughts on “Wow-GDP Unexpectedly Strong”

  1. The beat was attributed to stronger net exports giving a boost of a full percentage point and an inventory build helped by 65 bps (2/3rds of which was autos). This is not sustainable for coming quarters.

    1. Well said. I don’t know if it will “crater” next quarter but for sure the number will come back substantially.

  2. I think the commentators are ignoring the top line number. From Reuters: “Fed officials are likely to shrug off the surge in growth last quarter and focus on a measure of domestic demand that increased at only a 1.3 percent rate, the slowest since the second quarter of 2013. It increased at a 2.6 percent pace in the October-December quarter.” And later “Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to a 1.2 percent rate from the fourth quarter’s 2.5 percent rate.” Also, inventories climbing, as autos were produced, but not sold. This may be a useful link: https://www.reuters.com/article/us-usa-economy/trade-inventories-power-u-s-economy-to-3-2-percent-growth-in-first-quarter-idUSKCN1S2091

    1. I read where the adjusted number could be as much as a full percentage higher. That would be a change because in the recent past the figure has almost always been adjusted downwards from the headline figure. Another interesting tidbit is that the government shutdown only lowered the number by 0.3%, but I don’t put much faith in the government’s ability to calculate a lot of this stuff, or to assign causes to any of it. The best they can do is an “all else being the same” calculation, which never applies in the real world because it is all interconnected and dynamic.

      No matter how you slice it though, it is a very strong number, and very good news to us investors.

    1. Hi furcel—yes I think that is a good idea. I have kind of shifted my methodology in recents months so maybe I will outline that in the next week

    1. Yes Steve–I would have bet a dollar on just the opposite–guess that’s why I don’t make bets on interest rates–sometimes they seem illogical in the short term.

    2. A stronger GDP number was unable to lift the Price Index. Clear message to the bond market: there’s no inflation even now growth is peaking! The stock market sooner or later will wake up and see reality.

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