Again, the GDP number was fine and speaks to our present macro assessment: Conditions aren’t what they were a year ago, but they’re certainly okay.
Now, that said, as we dig into the report, we look to assess its quality to determine if the headline number reflects the kind of growth that says we should expect more good things going forward.
Good quality growth consists of strong personal consumption (“percon” on the chart below) and private sector investment (“non res inv” and “res inv” below). Not-so-good (but not always bad) quality growth consists of inventory builds (as discussed earlier), high net exports (“netx” below) — as it may reflect a not-so-strong U.S. consumer — and, of course, government spending (“gov”). The equity market’s contribution (“stocks”) can be viewed as good, since greater wealth can be reflexive, leading to increased good quality growth going forward.
Here’s the breakdown of this morning’s report. While the trading day is still very young, this (along with geopolitics) might explain why stocks aren’t celebrating the better than expected headline number: click to enlarge…