Stagflation Anyone?

| May 03, 2024

A lot of people panicked when Gross Domestic Product (GDP) came in at 1.6% in the first quarter versus the 2.4% expected by The Wall Street Journal economists. * The Bureau of Economic Analysis (BEA) reported that “compared to the fourth quarter, real GDP decelerated in the first quarter, reflecting decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending. These movements were partly offset by an acceleration in residential fixed investment. Imports accelerated."

That doesn’t tell the whole story though. The BEA goes on to write that “real final sales to private domestic purchasers, which measures private demand in the domestic economy and is derived as the sum of consumer spending and fixed investment, increased 3.1 percent in the first quarter compared to an increase of 3.3 percent in the fourth quarter.” **

At bottom, this represents solid economic growth and makes it nearly impossible for Fed chief Jerome Powell to make any meaningful cut in rates. The combination of low GDP growth and high final sales is what has placed the long-forgotten term stagflation on so many lips.

The panic is overblown though, which I shall discuss at greater length in the upcoming newsletter.


* https://www.wsj.com/podcasts/minute-briefing/us-first-quarter-growth-slowed-as-inflation-remains-stubborn/57f8e892-c575-437f-a70d-75e56869bd10?mod=Searchresults_pos2&page=2

** https://www.bea.gov/sites/default/files/2024-04/tech1q24-adv.pdf