Menu
Date: June 1, 2015

Don’t Believe the Negative GDP Print

Short and sweet as I am traveling today.

Last Friday, the government reported that Q1 economic output contracted by 0.70%. To the casual observer, that smells awfully close to the accepted definition of recession, two straight quarters of negative GDP growth. Stocks barely reacted on Friday and I attribute the weakness to geopolitical news in Europe.

The first quarter has been the worst GDP as far back as the eye can see. The government’s seasonally adjusted data needs to be seasonally adjusted again. They are flat out doing a horrible job! This contraction was actually better than the -0.90% expected and due to the tough winter in the eastern U.S. along with very poor trade data. In my view, you can almost completely dismiss the report as an anomaly.

I am anything but an economist. I do believe, however, that Q2 economic output is going come back very strong compared to Q1 in the 2-3% range and Q3 should be equally as strong. “Strong” may not be the best word, but I think you get my drift.

For further proof of no recession besides the stock market just yawning, look no further than the consumer discretionary sector which is but a whisker from ALL-TIME HIGHS. If the horsepower of our economy is this strong, it is so unlikely to see a “normal” recession without some external shock.

If you would like to be notified by email when a new post is made here, please sign up, HERE.

Author:

Paul Schatz, President, Heritage Capital