The latest GDPNow forecast of 0.6% first quarter GDP was nearly spot on. The BEA’s Advance Estimate of first quarter GDP came in at 0.5%.
Deceleration is the word of the day.
Real gross domestic product — the value of the goods and services produced by the nation’s
economy less the value of the goods and services used up in production, adjusted for price
changes — increased at an annual rate of 0.5 percent in the first quarter of 2016, according to the
“advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP
increased 1.4 percent.The increase in real GDP in the first quarter reflected positive contributions from personal
consumption expenditures (PCE), residential fixed investment, and state and local government spending
that were partly offset by negative contributions from nonresidential fixed investment, private inventory investment, exports, and federal government spending. Imports, which are a subtraction in the
calculation of GDP, increased.The deceleration in real GDP in the first quarter reflected a larger decrease in nonresidential
fixed investment, a deceleration in PCE, a downturn in federal government spending, an upturn in
imports, and larger decreases in private inventory investment and in exports that were partly offset by an upturn in state and local government spending and an acceleration in residential fixed investment.
Subtracting from GDP vs Last Quarter
- Nonresidential fixed investment
- Private inventory investment
- Exports
- Federal government spending
- Imports
Adding to GDP
- Personal consumption expenditures (PCE)
- Residential fixed investment
- State and local government spending
PCE (consumer spending) added to GDP but is decelerating.
Economists’ Estimate 0.7%
The Bloomberg Econoday consensus estimate was 0.7% in a range of 0.1% to 1.1%.
Highlights
Consumer spending, largely on services, helped hold up first-quarter real GDP which came in at an annualized plus 0.5 percent rate and just below the Econoday consensus for 0.7 percent. Consumer spending (personal consumption expenditures) rose at a 1.9 percent rate, down only 5 tenths from the fourth quarter. Within this, spending on services rose an in-trend 2.7 percent to offset a 1.6 percent decline in durable goods which were hit by weak vehicle sales.
Residential investment, up 14.8 percent, is a highlight of the report and helped offset a sharp 5.9 percent decline in nonresidential investment where weak energy drilling is taking a big toll. Inventories rose in the quarter but at a slower rate which is a negative for GDP while exports, reflecting weak global demand, were a negative for a second quarter in a row. Government purchases were a small plus in the quarter.
Price data are mixed with the price index up only 0.7 percent in the quarter, down 2 tenths from the fourth quarter. But the core deflator is up, 7 tenths higher to plus 1.9 percent which should get some attention.
The consumer bailed out the first quarter, both on services and also on fixing on their homes. But otherwise the report points to nearly no momentum going into the Spring quarter.
Recent History
The first estimate for first-quarter GDP is expected to come in at only plus 0.7 percent in what would be the weakest result since plus 0.6 percent in the first-quarter last year. But unlike last year, this year’s first quarter was not hit by severe weather which underscores how soft the quarter likely was. Consumer spending, though soft, may improve slightly while residential investment, which has been strong, may slow. Inventories are expected to pull down GDP as businesses destocked. Net exports may also be a negative. The GDP price index is expected to further soften, to only plus 0.5 percent from 0.9 percent in the fourth quarter.
Bloomberg Statement 1 vs. Statement 2
- Consumer spending, largely on services, helped hold up first-quarter real GDP …
- The consumer bailed out the first quarter, both on services and also on fixing on their homes.
The statements are contradictory.
Explanation: Consumer spending decelerated but was still strong enough to make a positive contribution to GDP.
Any further “deceleration” of consumer spending or housing will push GDP into contraction.
Now that the auto sector has rolled over, housing is about all that’s left holding things together.
Stagflation-Lite?
Core PCE, the Fed’s preferred measure of inflation is +1.9 percent.
Should inflation tick up coupled with weakening GDP, the economy will be in a Stagflation-Lite scenario.
Would the Fed hike into that? I don’t think so and neither does the market.
For further discussion, please see Fed Still Expects Two Hikes, Market Still Says One, Not Until November.
For those who said “Falling oil prices are unambiguously positive for the economy”, I have a question: Are rising oil prices now unambiguously negative for the economy?
Mike “Mish” Shedlock
Rate increase in November? After the first Tuesday?
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Ding ding ding! We have a winner!
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As the baby boomers age they spend less. Importing millions of poor immigrants on public assistance will not turn that around. Many do not realize that practically every nation in the world had a massive baby boomer generation, not just the United States.
I predict the next engine for growth in America will be old age support in the medical field, home care, nursing homes, etc. After all, that is the generation that has assets to spend on these services.
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Don’t forget to add all that new social spending to the “growth” of GDP, as well.
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The spending would have to be enormous, since GDP has been actually negative (considering true inflation of 7-10%/yr for the past 5 years—-see Chapwood Index).
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I doubt whether many of the boomer generation are prepared for retirement. They never counted on near ZIRP, and the bond market, which much of it is near a tipping point, is just starting to crumble. Most retirement funds are invested in bonds If some of that money disappears due to defaults, the medical field if going to be in serious trouble.
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There is no doubt about it. “Stagflation” is inevitable, given the serial policy errors that have been committed by the Central Banks over the past 20+ years.
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Stagflation in the 70’s brought on the double digit inflation of the early 80’s. That’s why gold and silver were on fire, until Volcker smashed the punch bowl.
Stagflation, like deflation, is politically unacceptable by ruling classes. It will be smothered in new money creation. Now that we have gone through the last 9 years of the fed filling the hole left by the 09 debacle with money, we are just about to the point it will begin overflowing.
Neo New Deal up next, after the selection,,,I mean election. Bridges to nowhere, glass and steel skyscrapers to fill with bureaucrats. High speed rail systems to where folks don’t need to go. Protection barriers springing up left and right.
Who knows, maybe a year from now CAT, DE and materials in general will be the new high flyers? Oh, and don’t forget to pay them union dues 😉
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Gold quadrupled from $35 in 1970 to $120 in 1973, and then quadrupled again between 1973 and 1979. This was the period of stagflation. The final blow-off top occurred in mid-January, 1980 and the Gold bull market of the 1970’s was over.
Volcker’s high interest rates ended the inflation and brought down the price of Gold with them.
There is zero chance that we will see interest rates even close to “normal” EVER again.
The big difference is that the upcoming stagflation will be accompanied by NEAR-ZERO interest rates this time and Gold will go parabolic as a result.
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Gold demand in Japan has been pretty stagnant.
A side effect of an older, effectively poorer, society, is ever increasing risk aversion. Everyone may “know” the dominant currency (Dollar here, Yen there) is getting destroyed, but it’s still the currency you have to pay for your doctor and nursery home in. Moving any meaningful share of what little you still have left, to anything “speculative”, even Gold, could turn a bad situation into a full on disaster, if things go against you.
The biggest bubble of all, is the bubble in faith in “investing.” Every Billy Bucktooth and his halfwitted uncle, has been raised to believe in the value of “investing well”, as if that was some sort of road to riches. While in reality, for anyone without insider knowledge, it’s all just pure random. And the only reason it has seemed otherwise, is money printing, inflation and wealth concentration, masking the childish silliness of it all.
Remove the asset pumping and the wealth concentrations it has enabled, and the difference in investment acumen (as separate from just random variation) between Warren Buffet and George Soros on one hand, and a retarded guy and his dead grandmother on the other, is statistically insignificant. But noone who happen to win the lottery will ever admit to it being luck. Instead insisting it was their “willingness to take risk”, their “meticulously research timing as to what Wednesday to go to the lottery shop” etc….. All nothing more than undiluted drivel, of course.
But the drivel does serve the connected and powerful, as it creates the illusion that people are somehow very different. That there exists a bunch of anointed people that are somehow bigger “experts” on what is better for you to do with your life, than you yourself is. And that there exists some meaningful number of “weak”, or “low skilled”, or whatever, people. Who conveniently needs to be “managed” and “taught” what to do (as well as “corrected when they fail). By the powerful and connected, of course.
All of (as in, literally all of) which again, is nothiong but nonsense. Everywhere, all the time, and without exception, ever.
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And IIRC, Gold and Silver were the best performing investments (by far) during the 1970’s “stagflation”.
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GDP stat is so opaque now, it can be tweaked anyway the 40%-of-spending government pleases. Especially when talking absurd numbers like .01. What the hell, is the margin of error .001 on that? Or .00001?
The GDP number, if anything, reflects added debt and deficit spending, i.e.; the higher the number, the more debt is added to the system. Real constructive, that.
But, of course, debt doesn’t matter. Right?
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“Whatever cannot go on forever will stop.”
~ Herb Stein
Council of Economic Advisors, Nixon White House
Japanese stagflation. Can it go on forever?
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The Philadelphia Federal Reserve Bank does a quarterly survey of “professional forecasters” … Q1 survey released on February 12th … and “professional forecasters” guess on Q1 GDP?
the envelope, please …..
+2.0%
https://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/2016/survq116
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“The statements are contradictory.”
George Orwell nods approvingly.
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But, the ends justify the means, no?
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My dentist called to offer me a 30% off sale on a crown. Consumer discretionary expenditure contraction causes small business retail stress, and deflation. The Obamacare tax blob hit the retail fan.
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Sure to be dodgy coming from a dentist, you want Sotheby’s for something like that.
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NYU Dental School is rated #5 in USA. I have met few Dentists as intelligent as this one.
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Best wishes to you, Jack, but does a dental crown really count as discretionary spending? Depends on one’s pain threshold I guess.
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An in law used to be Gaddafi’s dentist, I think he lost his job eventually though, through no fault of his own as far as I know.
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Since ZIRP has done very little to stimulate the economy, would a modest rise in rates really hurt much? Crucified savers might actually spend a little more.
Real CB goal is to keep bubbles from imploding. Need to support economy just a cover story IMHO.
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Affordable CPI prices are unambiguously good for shoppers. Who cares about nonsensical Keynesians measurements of “GDP. GDP should be measured sensibly, not by how many empty McMansion type Keynesian pyramids bankers tricked the private sector into building.
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What I find most amusing is that rate hikes are exactly the thing needed for stagflation.
During the housing market crash the immediate solution should have been to run rates up, brutally. Asset prices would have been brutalized, but there would have been liquidity and there would have been money to be made lending. Markets would not have crashed, and losses would have been taken, unwillingly, but they would have been taken.
Had Greenspan raised rates into the 2001-2003 recession and dot-com bubble bursting we would be living in a vastly different world today.
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All that is needed is to leave rates to the market and they would have gone as stated … under fiat currency there is no telling how a CB will decide though … I suppose they are there to make sure everyone ‘guesses’ right .
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Everyone misinterprets GDP. Take construction spending for example – construction costs are rising ten percent per year. Therefore, if construction spending is flat that means a ten percent reduction in the number of projects. Hence a lower demand for Caterpillar equipment. Economists will then claim deflation. I wonder if construction costs are in the “basket of goods”
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