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All three of the leading U.S. stock market indices are down today following the Commerce Department’s report on the GDP for the first quarter, whilst observers are still waiting to hear the monthly report from the Federal Reserve. At 1:30 pm EDT the Dow and the S&P 500 are both down 0.64%, with the Dow down 115.35 points to 17,994.79 and the S&P down 13.44 points to 2,101.32. The Nasdaq is down 0.87% to 5,011.25, a decline of 44.17 points. In addition, the NYSE Composite Index has fallen by 73.88 points to 11,129.13, a drop of 0.66%
It is not likely that the Federal Reserve Report, which is due at 2:00 pm today, will brighten the outlook for the markets. Fed Chairman Janet Yellen is not expected to entertain questions following her report.
The Report
“U.S. economic output expanded at a 0.2% seasonally adjusted annual rate in the early months of 2015, the Commerce Department said Wednesday. Here’s a quick look at the report.”
The Department of Commerce cited “bad weather, a slowdown at West Coast ports, a stronger U.S. dollar, weak global demand and lower oil prices” as the factors that caused a flat result. Whilst some of that makes sense, I stand alongside other observers who noted that:
“So the weather is blamed after the fact by the experts, but never taken into account in their projections.”
“Reminds me of the … USSR, where a former exporter of agricultural crops, especially wheat, under the Czar had to import foodstuffs in inadequate attempts to feed the masses, because of some 70 to 75 years of bad weather.”
“Blame the WEATHER…“
The report also said that, “The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) and private inventory investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and state and local government spending.” Of course, that is if you want to refer to 0.2% as an increase in light of expectations being in the 1.5% range and near the 2.2% growth in the fourth quarter of the previous fiscal year.
The Reaction
I’ve already mentioned the obvious: the market indices are dropping and people are not responding too kindly to the government’s attempt to make the report sound less troublesome.
Now we wait to see what the Fed will do about interest rate and normalization. Given the first quarter GDP, there is a snowball’s chance in you-know-where that the Fed will be increasing rates in June as many have anticipated. Chris Williamson at Markit, said it well: “A stalling of U.S. economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed.”
One reaction that I found to be particularly insightful responded to the investments in increased inventories cited in the report. “Inventory, unsold products, kept this from going negative and still may after revisions. But the inventory is now at record levels. That has to be sold before new products are produced, so low GDP will continue.”
The U.S. government seems to ignore these things. Investors will not.
