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 Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

Then and Now

Overbuilding, speculation, and easy access to credit encouraged a housing boom and a bust in the 2000s. Sales cratered later in the decade, and along with it, prices tumbled. Today, housing sales have plummeted once again.

Powell’s Victory Lap (Sort Of)

Fed Chief Powell’s much-anticipated speech against the picturesque backdrop of the Grand Tetons in Jackson Hole, WY, virtually assures that the Fed will reduce interest rates next month. In a short 16-minute speech, Powell said the magic words. “The time has come for policy to adjust.

Economic Anxieties Subside

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A Rollercoaster and the Carry Trade

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.

A September Rate Cut is on the Table, Softer Economic Data Raises Worries

As expected, the Federal Reserve kept its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. After holding the fed funds rate steady for a year, Fed Chief Jay Powell twice-mentioned that a September rate cut is on the table at his press conference.