So How Do We Interpret the Slow First Quarter GDP Results?

Hello Everybody.

As a securities analyst, I’ve always coughed at pundits ability to not be able to predict the stock market correctly, but then jump to the front to shout out reasons it performed the way it did…in hindsight.  In other words, to give reasons even when there are no reasons.  With that, I aver that this quarter’s low 0.7% GDP growth was a surprise to me. Let’s examine the factors leading to it.

Unemployment.

Unemployment is low, at 4.5%.  Without getting into numbers, it’s very low, around 4%.  And since GDP is driven to a good extent by the movement of goods and consumer spending, the combination of greater corporate activity plus higher consumer spending should be good.

Consumer Sentiment

Consumer sentiment is good too.  After all, if it weren’t good we wouldn’t be spending, and that would account for low growth.  But in fact sentiment is robust.

Consumer Spending

Consumer spending has been robust, about 5% growth.  No problems here (sort of, as we’ll see below).

What the Expert Say

The experts point to intricacies, such as: higher unit prices rather than unit volume in consumer spending.  Slowing Auto sales. But let’s stop here because my experience suggests this is what the experts do, they dig until they find something to support the facts.

What Michael Emerald Says (that’s me, BTW)

This quarter was an aberration.  Do I expect 5% growth as Donald Trump suggests?  No.  For one, we have a lot of overburden right now, primarily the government debt, weighing on the economy.  Second, courtesy of Dr. Rathnam, GDP growth has been slowing since WWII so growth in that range isn’t to be expected anymore.  But I do expect a return to 2%-3% growth in the coming quarters.

Michael Emerald, CFA

Owner and Wall Street Analyst, Performance Business Design