Q1 GDP Turns Corner, Goes Off Cliff

Are you sick of being lied to?

Virtually every economist and political pundit came into 2014 touting this year as being the one in which our economy turns the corner. Well, in the first quarter of the year I guess we did turn the corner...and in doing so ran right off the proverbial cliff.

How could so many be so wrong by such a wide margin in assessing the health and projection of our economy? I will tell you: when the virtues of truth, transparency, and integrity are subjugated to such an extent at the behest of the financial, political, and regulatory ruling triumvirate, we fail to get a fair and honest reading as to what is really going on in our economy, let alone our nation.

An economy does not retract by 2.9% because of weather, folks. Why did the economy suffer such a slowdown? The American consumer is getting increasingly squeezed and is not spending on a wide array of products, especially discretionary items. Why so? Have you checked the costs of fuel, food, rent, and healthcare lately? Where I tank up, a gallon of regular unleaded now runs $4.20/gallon. Bloomberg provides the following insights:

Consumer purchases, which account for about 70 percent of the economy, rose at a 1 percent annualized rate in the first quarter, the weakest pace in five years. The gain, which added 0.71 percentage point to GDP, compared with the previous estimate of 3.1 percent.

The revision reflected a drop in spending tied to health care services. The Bureau of Economic Analysis had estimated that major provisions of President Obama’s signature health care law would boost outlays. A quarterly services survey released this month showed the assumptions were too optimistic. Outlays for health spending actually dropped in the first quarter, subtracting 0.16 percentage point from GDP. The Commerce Department previously estimated those outlays added 1 percentage point to GDP.

Rather than talking more openly and honestly about the costs of these basic goods and services, we get a steady diet of drivel from most major news organizations. Even my favorite outlet, that being Bloomberg, was talking about men’s fashion rather than the economy at 8:38am this morning. Little wonder so many folks continue to look elsewhere for meaningful analysis of the news of the day. I recommend that folks follow the work and analysis of Keith McCullough and team at Hedgeye who have had as good a read on the economy as any I have seen in a long time.

With the 1st quarter retracement in the economy, we would now have to grow at better than a 3.5%  rate over the balance of the year to get close to an annual GDP for 2014 of 2%.

I’m an optimist, but I’m also a seeker of the truth wherever it may reside and whatever it might tell us. Better than 3.5% growth for the next three quarters?

I’m taking the under.