May 1, 2023

Making Heads or Tails Out of the Latest GDP Report

Weekly Market Commentary

Gross Domestic Product (GDP) is the economy’s largest measure of goods and services. Preliminary data from the U.S. Bureau of Economic Analysis showed that GDP slowed from an annual pace of 2.6% in Q4 2022 to 1.1% in the first quarter of 2023.

Weekly Market Commentary

Note the two-straight quarters that GDP declined in Q1 2022 and Q2 2022. Two-straight declines in GDP lines up the traditional definition of a recession. But consumer spending, which accounts for 70% of GDP, was up in both quarters.

During that period, the economy generated a robust 2.7 million jobs, per the U.S. BLS. Neither the consumer spending metric nor robust job growth would suggest the economy slipped into a brief recession last year.

Returning to the latest report, consumer spending increased from Q4’s 1.0% to a solid 3.7%. If we exclude a sharp de-stocking of inventories, which lopped 2.3 percentage points off GDP, growth in Q1 was solid.

Consumer spending, however, appears to have been distorted by very strong numbers in January, which offset weakness in Q4.

If we lump Q4 and Q1 together, it might be fair to say that the end of last year probably wasn’t as strong as it appears, while Q1 probably wasn’t as weak as the top line suggests.

As we move forward, it’s the tale of two economies.

People are still traveling and going out to dinner, and the economy is generating new jobs, but high-profile layoff announcements from large firms signal demand is softening in some areas.

Last week’s story in the Wall Street Journal bears this out. Falling diesel prices relative to gasoline mean fewer trucks are carrying goods across the country.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

Soft December Hiring Underscores Tepid Year

On Friday, the U.S. Bureau of Labor Statistics reported that nonfarm payrolls increased by 50,000 in December, underscoring a year of persistently sluggish job growth.

A Stock Market Three-Peat

The bull market that began in late 2022 continued through last year. The S&P 500 Index, which posted gains that topped 20% in both 2023 and 2024, recorded an advance of 16.39% last year.

An Uptick in the Unemployment Rate

The unemployment rate rose from 4.4% in September to 4.6% in November—see Figure 1. The US Bureau of Labor Statistics did not conduct its household survey in October due to the government shutdown. The household survey includes the unemployment rate

Fed Cuts Rates Again, Signals a Possible Pause

The Federal Reserve followed through on what was a widely expected rate cut, reducing the fed funds rate a quarter-percentage point (1 basis point = 0.01%) to a range of 3.50 – 3.75%.

Black Friday’s Spending Spree

A December 1 headline from Reuters sums up the start of the Christmas shopping season: US Holiday Shoppers Shake Off Economic Blues for Online Spending Spree.