In shock of the year (OK, not really), GDP was barely
positive in the first quarter; up only 0.1% with weather taking the
Of course this faltering growth rate was completely
missed by every single economist out there as their
expectations of 1.2% were only slightly off (sarcasm intended).
Hey, at least it is still growth, right?
Wait, It Gets Worse
The following day, Thursday, 5/1 it was reported March's
construction spending actually came in worse than expected at only
0.2% growth. This compares to the assumed 0.5% rate.
This also means the initial 1Q GDP of 0.1% also is certain to be
too high. Estimates from the big banks are already being
updated to a range of (-0.1%) to (-0.4%) negative growth.
Also, let's not forget about the little anomaly called the
Affordable Care Act.
What did not get a lot of airtime was the fact that healthcare
spending was a full 1.1% of first quarter's GDP growth, meaning if
you backed out Obamacare spending (or it did not occur), GDP likely
would have come in nearer (-1.0%) in the first place.
Two quarters in a row of declining GDP growth is what
constitutes an official recession, and the U.S. thought it had just
narrowly avoided the first half of such a potential.
With construction's miss, it is almost certain GDP will be
adjusted downward and thus into recession territory when the first
round of official revisions come out on 5/29.
Does GDP or any Economic Stat Matter?
John Williams over at ShadowStats.com makes the convincing case
that the U.S. is already in a full blown recession and has been
since 2004 as his chart below illustrates.
The U.S. official GDP shows in red that annual GDP has been
growing since 2009 per our government's measurements.
How we used sentiment to grab a 60% gain in gold
But John's analysis suggests if you adjust GDP for the real
annual inflation numbers (much higher) and back out all the changes
to the calculations that have been altered through the years (for
example the change in the calculation of intangibles that occurred
in 2013), then GDP shown by the blue line has actually been
declining for 10 years now. Translation: we have in reality
been in a recession for 10 years!
Another alternative measure of inflation has been calculated by
Ed Butowsky and agrees that the low official inflation rate is
bogus. His Chapwood Index suggests inflation is around
10%/year for each of the last 3 years in the major metropolitan
areas of the United States, obviously much greater than assumed CPI
Of the top 40 most populated cities, he says Colorado Springs in
2013 had the lowest year over year real inflation change at "just"
6.5%. The highest rates of inflation for the top 40 largest
cities were typically in California at 12%+.
All this really just shows is that fundamentals are not driving
the market, because even a huge GDP downside surprise, and now a
negative print, barely made the markets (NYSEARCA:SSO) blink.
If John and Ed are right about inflation, then GDP likely has
been declining and we have been in a recession for 10 years, yet
the equity markets (NYSEARCA:SPHB) are still making new all time
So much for fundamentals and economics driving share prices!
The fundamentals (NYSEARCA:FNDX) keep deteriorating but the
market (NYSEARCA:SCHV) shrugs it off. This of course won't
last forever, but in the meantime investors need other tools to
help evaluate and stay ahead of the markets (NYSEARCA:AGQ).
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