5 Takeaways From The Weak GDP Report Q1 2016

by: Dr. Bill Conerly

Gross domestic product increased 0.5 percent (annual rate) after inflation adjustment, the Bureau of Economic Analysis announced today.

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  1. There's not much difference from zero growth. The 0.5 percent growth figure is positive, but later revisions often run one percentage point or more. The revisions could be positive or negative, meaning we could be in recession. (My judgment is not, but could be.)
  2. Consumers are doing OK. They cut back on car sales from their Q4 euphoria but still managed decent growth in overall spending. No problem here.
  3. Businesses are definitely cutting back spending. That includes structures and equipment both. Part of the decline in capital spending is from petroleum weakness, but other companies are also trimming expenditures.
  4. The inventory buildup which scared me last year is milder now. Inventories are still growing, but at a slower pace. We need executives to watch their inventories very carefully, as inventory swings can be very destabilizing to the economy.
  5. Exports weren't as bad as expected. The dollar value was down, but inflation-adjusted exports were up. That's because price tags on exports have fallen, thanks to weak pricing of commodities and industrial materials. Global economic conditions are not much better despite the U.S. figure.

The most likely economic outlook for the rest of 2016 is moderate growth. Consumers will continue to grow their spending at a decent-but-not-booming pace. Housing construction is likely to accelerate after its mildly positive growth in Q1. Business attitudes are the most critical issue. Underlying business justifies more capital spending, but that won't happen if CEOs are frightened by the next president, whoever he or she may be.