Morning Report; GDP comes in better than expected

Vital Statistics:

Stocks are higher this morning after good numbers from Google, sorry Alphabet, and Q1 GDP came in better than expectations. Bonds and MBS are flat.

The US economy grew at 2.1% in the second quarter, a deceleration from the 3.1% recorded in the first quarter, but higher than the Street estimate of 1.8%. Note that the Atlanta Fed’s GDP Now model was predicting only 1.3% growth as of yesterday, which is a big miss, so perhaps this number will eventually get revised down.

In terms of the internals, consumption rebounded rising 4.3%, compared to only 1.1% in the first quarter. Inflation rose 2.3% on the headline number, while the core PCE rose 1.8%. Disposable income rose 4.4%, or 2.5% after inflation and the savings rate fell from 8.5% to 8.1%. Trade was a drag on growth, with exports falling 5.2% and imports flat. Investment was disappointing, falling 5.5% however the first quarter was revised upward from 1% to 3.1%. The economy’s old bugaboo, housing, fell 1.5%. It is strange to think we have a such pent-up demand for housing yet it remains a headwind but here we are. Inventories fell as well.

The Fed Funds futures moved slightly. A rate cut next week is more or less a sure thing, and the futures are predicting an 80% chance of a 25 bp cut and a 20% chance of a 50 bp cut. This is realistically the last data point before the Fed meets next week, although consumption and PCE will be released on the day the meeting begins.

The homeownership rate fell in the second quarter, falling to 64.1% from 64.2% in the previous quarter. This rate of 64% was more or less the norm prior to the big homeownership push from the government in the mid 90s. It topped 69% during the bubble years and then fell below 63% during the bust. The rental vacancy rate was flat at 6.8%, which again is consistent with historical norms. It is an interesting series the vacancy rate was quite low during the high interest rate 1970s and quite high during the bubble years.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray