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.

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