The Week in Review: January 30, 2023
GDP: Looking in the Rearview Mirror
Gross Domestic Product (GDP) is defined by Investopedia as “the total market value of all the finished goods and services… in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.”
It is a very broad measure of economic activity, but it is also a look in the rearview mirror. In this case, GDP covers activity from October—December. We are about to enter February.
In Q4, GDP expanded at a respectable 2.9% annualized rate, according to the U.S. Bureau of Economic Analysis (BEA). It was down slightly from Q3’s 3.2% growth rate.
The good news: the economy continued to expand. But a quick peek under the hood reveals a more problematic scenario.
About half the increase came from a rapid rise in inventories, i.e., unsold goods (a rise or fall in inventories aids or detracts from GDP). Roughly 25% came from a big jump in government spending (a rise or fall in government spending is part of the GDP calculation).
What was positive? Consumer spending was a large part of GDP’s rise.
Uncertainty is the word of the day. According to a broad report released by the Federal Reserve, manufacturing has weakened over the last three months, and leading economic indicators continue to paint a bleak picture, according to the Conference Board.
However, the labor market remains tight, at least in most sectors. Notably, first-time claims for unemployment insurance from recently laid-off workers are near a cyclical low (Dept of Labor).
While recent reports are signaling weak growth in the first quarter, most investors do not believe a recession has begun.
So, investors are in a wait-and-see mode.
The Fed appears set to slow its rapid pace of rate increases. A closely watched gauge from the CME Group is suggesting a 25 bp rise in the fed funds rate this week (1 bp = 0.01%). That has supported equities, as it has been an upbeat start to 2023.
If you have any questions or concerns, please do not hesitate to contact me directly.
Two for the Road
According to Guinness World Records, Tesla CEO Elon Musk has lost more money than anyone in history. - NPR, January 12, 2023
Negative returns in both stocks and bonds over any 12-month window have occurred only three times since 1926. - Callan. May 13, 2022
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.