The GDP Report satisfies the desire for a smooth landing.
In the first three weeks of the year, the rate of economic progress was much more slow than anyone had anticipated, and inflation was much higher.
The statement suggests that the smooth- getting scenario—solid growth and rapidly falling inflation—is dead. We’re now facing a no-landing or maybe even a painful landing.
Gross domestic product ( GDP ), the government’s official scorecard for the economy, grew at a paltry 1.6 percent annual pace in the first quarter. That is a significant decline from the 3.4 % rate in the previous third, which serves as a reminder that the rate of economic growth can change quickly.
Many Wall Streeters were unsure if the discussion forecast for a 2.5 percent growth rate would turn out to be very small. The Atlanta Fed’s GDPNow ended last week at 2.9 percent and registered 2.7 percentage on the day Thursday’s transfer. According to a study of professional forecasters conducted by the Philadelphia Fed, the business was expanding at a 2.1 % level.
We like to look at the variety of projections in the Econoday study to get a sense of how far the projections were. The lowest of these was 1.7 percentage, a tick higher than the outcome. In other words, none of the professional experts anticipated the 1.6 % growth rate for the first quarter.
Bad News Is Bad News Once
The design for markets has recently been bad for the business and good for the markets. The argument has always been that symptoms of weak economy may prompt interest rate increases or slow down the pace of the cuts once they begin. On Thursday, however, bad news for the business was also bad news for the property sector.
One explanation for that was that the dangerous categories of trade and inventories were the principal drags on GDP. Export progress was poor, but buy growth, which is a result of the GDP subtraction calculation, was strong. Despite some indications of economic treatment around the world, exports increased by only 0.9 percentage in the third. It serves as a reminder that, despite the fact that the U.S. business has recovered from the pandemic better than almost anywhere else, failure abroad can have an impact on our growth.
Export progress was split equally between goods—which rose 0.9 percent—and services—up 1.0 percent. The dollar’s relative power to other currencies was probably a factor in this situation, putting U.S. goods and services out of the reach of foreigners. International political uncertainty may have also impacted trade demand. Eventually, the Biden administration’s foot-dragging on improving the U.S.’s ability to export power is likely to start to drag on growth for years to come, unless November brings a shift in executive branch power.
Inventories grew by just$ 35.4 billion in the January through March time, much less than expected. This gap shaved 0.35 percent off GDP for the third.
Because these are “non-inertial things,” as Harvard’s Jason Furman put it in a blog on X Thursday, Wall Street was willing to look past the poor trade and supply numbers. Big stockpiles tend to change in later quarters despite significant economic downturns. Exports should not be taken as a predictor of progress for the rest of the year because they do not change with the local economy.
GDP growth came in the first quarter slightly below expectations, growing at a 1.6 % annual charge.
But much of the slowdown was in non- inertial items like inventories (-0.35pp ) and net exports (-0.86pp ). The better final sales message to private domestic customers was 3.1 %. photograph. twitter.com/bIv8s5yMtA
— Jason Furman ( @jasonfurman ) April 25, 2024
The requirement that underlies it continues to be strong.
The GDP record showed signs of underlying power. Starting with business, imports were up a strong 7.2 pct, indicating a high level of local demand. Last sales to exclusive private purchasers—the best vpn for how the real market is fairing—grew at a solid 3.1 percent speed. That is significantly below the 3.4 % increase in the previous quarter and above the 3.0 % increase in the fourth quarter of last year.
Private consumption spending came in at a 2.5 percent, a however good ( even if significantly weaker than expected ) rate of growth. The second decline in spending on goods since the fourth quarter of 2021 was caused by a decline in durable goods, which was primarily driven by a decline in investing. Here, the warmth in vehicle sales were a major drag. This may also indicate that consumers are consuming too much gas as a result of prices and higher gasoline prices stifling other purchases.
There was probably some timing here as well. Keep in mind that January saw a poor retail revenue. What’s more, next year’s autoworker strikes left some sellers quick of stock for much of the second quarter. Interest rate cuts in the first quarter of this year ( which have now passed ) may have encouraged some consumers to postpone payments until they could obtain better financing conditions.
Since the third quarter of 2021, spending on services has increased by the most, as evidenced by the rise in both financial services ( a booming market leading to higher commissions ) and health care ( everyone is consuming those weight-loss medications ). This was the second consecutive third of rising service expenditures.
Set purchase jumped 5.2 percent, great enough to include nine- tenths of a percentage point to total growth. This was driven by a 13.9 percent surge in residential investment. Housing investment has increased for the third consecutive quarter, indicating that the market for existing homes has a strong supply but a constrained supply.
Nonresidential investment increased by 2.9 percent despite a decrease in investment in business structures. This decrease in structure investment is due to federal government subsidies moving forward with spending in the previous quarters. Without a new round of government largesse, this is likely to remain weak in the upcoming quarters.
Other business investment was robust despite the decline in nonresidential structure investment. Equipment spending rose 2.1 percent, and intellectual property investment jumped 5.4 percent ( probably an AI bounce ).
Still hot in the inflation zone
The report’s significant surprise was the level of personal consumption expenditure (PCE ) inflation. Because the reports for the January and February PCE price indexes, as well as the March consumer price index and producer price index, were already available, analysts should have been able to nail down this pretty well. The general consensus consensus forecast for core PCE inflation was a 3.4 % annualized rate. The Philly Fed’s survey of professional forecasters, which is quite dated at this point, had headline PCE rising 1.9 percent and core up 2.1 percent.
Instead, the government said that PCE inflation came in at 3.4 percent and core came in at 3.7 percent. This could indicate that the March PCE report from tomorrow will have significant improvement over the January and February figures, or that the March report will be significantly hotter than the suggested CPI and PPI reports. In either case, a larger number is likely to halt any Fed cuts until the earliest possible year and increase the likelihood of a Fed increase.
In the worst case scenario, growth would continue to grow slowly or even decline while inflation would continue to be too high for the Fed to cut. The risk presented in this report is that it wo n’t be the case, but the underlying domestic demand figures suggest otherwise. The economy is still growing, and inflation is remaining stubborn.
In other words, there’s no landing in sight.
