Weaker Growth and Higher Inflation: Why Consensus Was Wrong

Commentary The weak gross domestic product (GDP) figure for the first quarter came with a double negative: poor consumer spending and exports plus a rise in core inflation. The U.S. administration’s enormous fiscal stimulus underscores the importance of considering the weaker-than-expected data. A deceleration in consumer spending, a decline in the personal savings ratio to 3.6 percent, and poor exports added to a set of figures for investment that were also negative when we looked at the details. The GDP is much weaker than the headlines suggest. If we look at consumption, both durable and non-durable goods were flat or down, while the only item that increased modestly was the services factor. Residential and intellectual property boosted investment, while equipment remained weak in the past two quarters. The slump in export growth coincided with a significant increase in imports, which weakened the trade deficit. Government spending continues to rise, albeit at a slower pace, and becomes the main factor to disguise what is evidently a concerning level of growth for a leading economy with enormous potential....