Weak GDP? No Problem

U.S. economy shrank at 1% annual pace in 1Q

Daniel Gross, correctly, disabuses the fear of a double dip recession

Economic data is, by in large, worthless in terms of investing and forecasting. It’s backward looking and tells you nothing about future data. If you base your investing decisions on economic data, you will sell at the bottom and buy at the top, guaranteed. It’s just ambient noise that can be ignored, like radio static or the humm of fluorescent lights. The left get hung up over GDP and job creation, but to Wall St. those things aren’t important, especially not since 2009. Wall St. would rather have less job creation and weaker GDP growth in exchange for more accommodating fed policy, and that has pretty much been the story of this bull market.

Changes in private inventories reduced economic growth by 1.62 percent in the first quarter. But the good news is that personal consumption expenditures rose 3.3 percent from the fourth quarter of 2013 to the first quarter of 2014. Wall St. cares more about consumer spending than inventories. Also in the first quarter of 2011, the economy shrank at a 1.3 percent annual rate, but there was no recession and the stock market is up a massive 40% since then, again showing that the connection between GDP growth and equities is tenuous at best. Thanks to a myriad of factors such as the indefatigable consumer and super-effective fed policy, we live an age of long business cycles. The last two economic expansions lasted 73 months and 120 months, respectively. Within those long stretches of growth, there were quarters when the economy grew rapidly and quarters in which it shrank or flat-lined. What matters is that the economy is growing, and to Wall St., a little bit of growth, non-existent bond inflation and forever accommodating fed policy is all that’s needed to levitate stocks.

The left wishes that the consumer would be maxed out to agree with their ‘we are doomed’ narrative, but that’s never going to happen. The left has been front-running the demise of the consumer since 2009, to no avail. Wages are sticky and consumers can draw capital from rising real estate and credit cards, and even when they are fearful of being fired or lacking in confidence, they still keep spending. The left wants pain at the pump to hurt the economy ,so that they can blame speculators. But even if speculators are contributing to rising commodity and energy prices, it’s not hurting profits and earnings so the left’s desired result – a recession – is averted, yet again. $120 oil and $4.5 gas will hurt democrats in the midterms, but not the economy. Stocks will surge in anticipation of massive losses for the democrats, which could explain the current rally now. I, for one, hope pain at the pump gets worse so that libs lose. But higher gas and energy prices will contribute to consumer spending. As shown below, falling energy prices contributed to the weak GDP reading: