About the Reported Increase in First-Quarter GDP [Updated]
A Good Headline. A Bad Report.
By blackhedd Posted in Economy | GDP | recession — Comments (5) / Email this page » / Leave a comment »
Noted briefly: the 0.6% increase in first-quarter GDP reported this morning was the result of increased inventories, with some contribution from exports.
The first factor is not likely to be repeated, and in fact inventory changes subtracted nearly 2% from GDP in Q4. The second factor reflects dollar weakness in Q1, but the dollar has turned around and is now becoming stronger.
Consumer spending and labor markets are looking putrid. Corporate balance sheets are looking strong and clean, as companies hoard cash.
It’s fair to say that, based on this report, the US economy is not technically in recession (meaning, two consecutive quarters of reduced output). Beyond that, there’s no good news. The bond markets are in total stasis at this point, awaiting the Fed’s interest rate announcement at 2:15pm EDT.
Expect a 25 basis-point cut in the Fed Funds target rate, to 2%. Anything else would be a huge surprise.
The really important thing in the announcement will be whether the Fed’s generally-opaque language signals an end to interest rate cuts. Since this is widely expected, the likely reaction would be a slight fall in the value of the dollar. They could surprise everyone by saying that higher rates are to be expected soon in response to high inflation pressure. They could flabbergast everyone by saying the opposite.
Update: The Fed cuts its benchmark rate to 2%, as expected. The accompanying statement suggests a wait-and-see attitude on the part of the Fed in coming months. They believe that they've already done enough interest-rate cutting to stabilize the economy, and repeated their mild warnings on inflation. As I predicted, the dollar has fallen slightly on the news. Stocks are selling off and bonds are higher.
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About the Reported Increase in First-Quarter GDP [Updated] 5 Comments (0 topical, 5 editorial, 0 hidden) Post a comment »
Well, not in a free forum anyway :-)
If we get a signal that rates will firm, I would be less surprised by a stock market rally than by the opposite.
The bond market, which matters more than the stock market, would probably do the opposite. Except for the fact that they've been anticipating this and plunging for days now, so maybe they'll just pause for breath.
it "feels" like a recession, from my recent experience in ten different retail establishments.
Don't kill the messenger, it is not real good, nor is it bleak, as I said before, we need recessions every now and then. They will remain very short as long as government does not do too much to try to "correct" them.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
or rather, it allowed my strong arse credit history to get a loan to buy some schlubs house...which I then rented back to my parents to cover the loan payments. Recessions are dope.
...and explain that they are interested in shoring up the dollar. I would rather take a hit in the equity markets than continue the commodity inflation that has been going on in big part because the dollar is in the toilet.
“.....women and minorities hardest hit”