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Q1 GDP: Staring Into The Abyss


  • Overall the picture is the most dramatic month-to-month shift in consumer behavior ever.
  • Private wages declined dramatically in historical fashion. Small business income also saw record declines.
  • The personal savings rate hit 13.1%. The last time it was that high was 1981, when the 10 year note paid 13.4% interest. Thrift and prudence will abound.
  • Consumption declined across a broad swath of goods, concentrated in durables, offset by groceries and household supplies. Demolition in PCE services.
  • For now, residential investment is surging, while nonresidential tanks. I doubt the homebuilding holds up.

Pictured: The US economy at the end of February. Warner Brothers

The Next Step Is A Doozy

The preliminary Q1 GDP report, just issued, is a bit of a strange beast. All indications are that January was a decent month, and February a little softer, but still roughly on the lukewarm ~2% annual pace of real GDP growth we’ve been on this entire cycle. The virus was already here as February rounded to a close, but like Wile E. Coyote before the inevitable happens, gravity only started working when we all collectively looked down at all the empty air underneath us. There is a lot of air, and we are far from the bottom.

So the quarterly numbers do give us some hints to the depth of what happened in March, but that only accounts for roughly a third of the quarterly average numbers that BEA reports. Moreover, the big demand collapse did not happen until mid-March, so it is really only the final two weeks driving all that.

Fortunately, income, consumption and inflation measures are also monthly, and the rate of change here is staggering. The March over February numbers on consumption and inflation are eye-poppers. But again, the big changes did not happen until the middle of the month, so we are really only looking at half a month of demand shock.

The picture we get is the largest month-to-month change in consumer behavior ever. I’m not sure there will ever again be something quite like this from a macroeconomic perspective.

April and May will be worse.

The Two Things That Scare Me The Most

Yes, it’s starting to get to me.

There are two things that are scaring me in the data, one short term, one long term. The Fed is providing an unprecedented amount of liquidity, starting with almost $1.9 billion

This article was written by

Trading Places Research is a macroeconomics specialist with decades of experience identifying geopolitical factors that lead to market trends. With a focus on technology, he focuses on where the sector is headed as opposed to where investments are currently.

Trading Places is the leader of the investing group Learn more .

Analyst’s Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (11)

Phenomenal analysis, @Trading Places Research.

Thank you for your continued posting at SA. Your econ analysis and commentary here are invaluable.
Trading Places Research profile picture
@deservingirving You’re very welcome. Submitted an article on the jobs report last night. It should get up today or tomorrow, so look for that.
Thank you for doing so much work in putting this together. These charts are very helpful to me in that they provide hard evidence confirming my heuristic impressions from Co. press releases and movements in the market (herd behavior).

I too will be very interested to hear what the dog says when it barks.
Trading Places Research profile picture
@CarefulClimber Always fight confirmation bias. I went through the report mostly looking for silver linings, finding little.
@TPR...Thanks for this article...how do you find the time to research all of this data and distill it down for the rest of us. I keep wondering how big of a deal the looming pension crisis is in this continuing low interest rate environment. Maybe I'm barking up the wrong tree here, but If Japanification takes hold, what effect will that have on pensions (both public & private) and the second-order effects on the macroeconomic environment.
Trading Places Research profile picture
@mdmcd Actually I write these things for myself. I don’t really know exactly what I think about something until I have to explain it to someone else. The editing and making readable charts I do for you guys.

But to your question, defined benefit plans have been of concern for some time. Just a look at the 10 year rate chart tells you why — they were created in a time of much higher inflation, but also higher risk-free return. But I don’t really have an answer because I haven’t really looked at the scope of defined benefits going forward. The big risk is that whomever manages these things chases yield and the whole thing implodes like the banks did in 2008.

Sorry, that’s all I got, but maybe I’ll write that up if things slow down for a second.
TPR, great analysis. Noticed right off, how you let the 'numbers' do your talking.
What is "PCE"?
Never mind. I looked it up. Personal Consumption Expenditures.
Maybe this will help another reader.
No problem. Enjoyed the write-up and much useful information. And I added another acronym to my vocabulary!
Trading Places Research profile picture
@adowns This one was 6k words, and I wrote it pretty fast over the w/e. Sorry again about the oversight.
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