Q1 Likely the Strongest Quarter of the Year – Ep. 462

Recorded April 26, 2019
May 13 – 15, 2019

Q1 GDP Expected at 2.3%

Today we finally got the first estimate for the U.S. GDP in the first quarter of 2019, and typically the first quarter of the year has been rather weak.  That has been the experience pretty much going back through the Barack Obama administration.  And the consensus was for a 2.3% rise in Q1 GDP, that would have been just a slight improvement over the 2.2% number that we got for the 4th quarter of 2018.

Expectations Were Low

If you remember, way back, a couple of months ago, everybody was really low. You had a lot of people who were looking for Q1 GDP to come out with a zero handle. But they had been ratcheting up those expectations now to a consensus of 2.3%.  A lot of it had to do with the fact that the trade deficits had come in a lot smaller than people thought. I think the reason for that is because the trade deficit really ramped up in the last couple of quarters, probably because businesses were trying to front-run the tariffs that were supposed to come in at the end of last year. That might have caused extra imports to try to get things in under the gun before they were subjected to the tariffs.  So because we pulled all that forward, imports weren’t as much in the first quarter, so they did not subtract as much from the GDP.

Inventories Continued to Build

Also, the inventories continue to build, but most importantly, because they weren’t selling. Goods weren’t selling as much – inventories were building.  That ended up helping. We ended up getting a number that was much bigger than consensus.  We actually got 3.2% GDP growth for Q1.

Delaying the Day of Reckoning

Now, before you get all excited, “Aha, Peter, you were totally wrong on this, you were looking for a weak number…” – first of all, a lot of people were looking for a weak number.  It wasn’t just me. But I do believe that we simply delayed the day of reckoning by a quarter.  I think this time, it’s going to be the second quarter that will be a big disaster.