It didn’t go unnoticed, but it did take a little digging for our friends at First Trust to get an answer to the big question…”Did we just go into a recession?”
To help answer this, we can look at what the Atlanta FED, home of GDPNow, is saying. It’s the real-time GDP indicator for the economy. A sneak-peek of sorts. Before we get into the indicator, let’s start by defining what GDP is.
GDP = Gross Domestic Product. In layman’s terms it is the amount produced by an economy. To get more specific we turn to trusty old Wikipedia.
Basically, stuff made in the US versus outside the US and imported. If a BMW is made in Germany it counts as their GDP but not ours, even if it is sold in the US. Sort of make sense?
Assuming I haven’t lost you already, here’s what happened with the GDPNow.
It went from over 2% positive to over 2% negative almost within a couple days. So today, it is saying that the economy is likely to contract by over 2% in the 1st quarter. Now we know that GDP is a lagging indicator, so we won’t find out the actual number until after it happened. But we can measure things that affect the GDP and that’s how the Atlanta FED gets their information. So, what happened?
We have been saying for some time that the economy is not as strong as the reports have been saying and It’s possible that those reports are catching up to reality. Then again, let’s pull from our friends at First Trust.
Haven’t I heard that somewhere before? Yep, look up to the definition above. So, what happened?
Last week we got an updated imports number and let’s just say it had an effect on the GDP reading. In fact, the Atlanta FED said this:
Keep in mind that when we import things it is a negative for GDP, compared to when we export things. Ok, so why did that happen? That’s a good question. Continuing with the commentary from First Trust, likely what happened is this:
So, whether you like Trump or not, there is something in this report for you to like (or dislike). It’s clear that companies were trying to get ahead of any tariff taxes and import a bunch of parts or final products. If we end up having a negative quarter of GDP, it will likely not be multiple quarters. Likely what will happen is that companies in the US will sell through whatever they ordered a lot of and their imports in the subsequent couple quarters will be less. And remember, that should give us a higher GDP print in later quarters. Or in the final words of First Trust…
We are still in the camp of a slowdown and possible recession. Although it is questionable what the layoffs in the Federal Government will do to the economy. That certainly could make the situation worse, but we will have to see. For now, we continue to be conservative in our allocation, as we have been since November 21st, long before the bad news hit...
That’s it for this week. If you have any questions, please reach out and we will be happy to have a conversation.