EC Well, That Clears Up Nothing

Gray High Rise Buildings

Disappointing some, US real GDP managed to come in 6.2% higher in Q1 2021 when compared to Q4 2020. This was slightly less than the “consensus” which had figured around 6.6% growth and then the more optimistic calculations including the Atlanta Fed’s GDPNow tool that had only yesterday pointed to 8% (with some outlier whispers dialing up double-digit gains).

Even so, the data was either amazing or confusing, depending upon your perspective which can change under different types of analysis.
To start at the top, the sequence of -5.1% in Q1 2020 (the first of the recession) followed by the big shutdown and GFC2 yielding -37.7% in last year’s Q2, then +28.8%, +4.2%, and now +6.2% leaves seasonally and inflation adjusted output just about 1% below the Q4 2019 prior peak. More to the point, it’s still nearly 4% less than where the economy “would” have been had there not been a recession in the first place (or had a full recovery materialized before the first three months of this year).

Is this a sign of success, even of having created too much? That’s where the questions only begin given that much of these increases are not the economic results of organic processes. These are artificially boosted estimates of an artificially “drenched” system indicated in the huge hand of Uncle Sam (GDI’s view of it, stipends, was still more than $400 billion SAAR in Q1).

On the one hand, only 1% below peak and “just” 3.7% less than baseline (even if that baseline wasn’t good). On the other, trillions in “stimulus” and this is as close as the government (not the Fed) could manage? Why not bursting upward above either of those comparisons before now?

For one, the headline estimate was negatively impacted by imports over exports (the latter a concern about how the rest of the global economy is even more questionable than this US rebound) as well as a pretty sharp drop for inventory. Some will say production bottlenecks and supply chain issues account for this, but as we’ve noted for almost a year production across the US and global economy seems conspicuously unwilling to embrace the positive interpretation.

That meant for all the buying in goods, much of it came out of previously restocked inventory rather than both rising spending and rising inventory (recovery).

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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