We got the initial read on first quarter GDP this week – while economists were forecasting a 2.3% growth rate, we actually saw GDP increase by 3.2% for the first quarter. What happened to all the data that was indicative of a slowdown in economic growth?! A surprise to the upside came from a 3.9% increase in local and state government spending, which had decreased by 1.3% in the fourth quarter. Two other factors that positively impacted GDP were increased inventories and trade. On the other hand, consumer spending only increased by 1.2%, which is the slowest rate of growth we’ve seen in a year, business fixed investment decelerated significantly to a 2.7% gain, investments in structures fell 0.8%, residential investments dropped 2.8% for the fifth straight quarter, and the core inflation measure dropped to 1.7%, falling further from the Fed’s 2% target (whoomp there it is)

Moral of the story: The increased state and local government spending is likely due to the partial federal government shutdown. The strength from inventories and trade could very well be ephemeral. So despite the strong headline number, the composition of GDP this quarter wasn’t stellar. However, the rebound in retail sales and capital investments in March is hopefully indicative of sturdier numbers going into the second quarter. 

Hey how are you feeling? 

Consumer sentiment for April came in at 97.2, down slightly from 98.4 in the prior month. Consumer sentiment has remained range-bound for the last few years and this April reading is right in line with that average. Notably, the percentage of consumers expecting improving financial prospects versus those expecting worsening financial prospects has increased to the highest level since 2004. 

Moral of the story: With retail sales rebounding in March, unemployment at near fifty-year lows, and the emergence of wage growth, it’s not a surprise that consumer sentiment has been high.

Earnings are here (Part 3) 

We saw earnings reports from over 750 public companies this week, so you could say it’s been a little bit of information to digest. We started the week with better than expected results from major companies like Coca Cola, United Technologies, Lockheed Martin, and Procter & Gamble, sending the stock market to new record highs on Tuesday. The rest of the week’s big releases (Facebook, Amazon, Microsoft, 3M, Exxon, and Intel to name a few) reported a mixed bag of earnings, keeping the overall stock market fairly range-bound throughout the remainder of the week. 

Moral of the story: Of the companies that have reported earnings so far, most have exceeded expectations and the misses seem to be largely attributable to company-specific stories rather than broader economic issues. The earnings recession as feared doesn’t seem to be materializing this quarter.