I Just Hope the Fed Won’t See This: US Economy Has Blowout First Quarter

“Patient” may become less patient.

Bedraggled by bad weather, lower tax refunds, and the government shutdown, the US economy had caused a lot of handwringing in January and February, with lousy, conflicting, and noisy data in part due to the data blackout caused by the government shutdown. But the data released in March and April started catching up and clearing up, and many data points bounced back, including retail sales. And this morning, the Bureau of Economic Analysis reported that the economy as measured by “real” (inflation-adjusted) GDP grew at an annualized rate of a blowout 3.2%.

This blew past the median estimate that the economists polled by Bloomberg had recently been ratcheting up to 2.3%.

Sure, weaknesses always lurk somewhere, and there are always plenty of things to pick on, and some of the items were volatile categories that move up and down from quarter to quarter and will likely reverse next quarter.

Plus, inventories rose, and rising inventories, which are considered an investment and add to GDP, are eventually followed by a decline in inventories when companies whittle them down again, and there is a price to pay for it. But these types of ups and downs always appear in the calculus. So here we go:

Some of the biggest drivers behind this growth in Q1 from Q4 2018:

  • Federal government spending on defense: +4.0%
  • State and local government spending: +3.9%
  • Net Exports rose (exports minus imports): with exports +3.7% and imports -3.7%
  • Residential investment fell less than in Q4 (-4.7%) than in Q1: -2.8%

These drivers were partially offset by:

  • Federal government spending on nondefense: -5.9%
  • Personal consumption expenditures, durable goods, such as cars and fridges: -5.3%
  • Personal consumption expenditures, nondurable goods, such as food and clothing: +1.7% (down from +2.1%)
  • Personal consumption expenditures, services, such as healthcare, rents, and finance charges: +2.0% (down from 2.4%).
  • Nonresidential fixed investment: +2.7% (down from +5.4%)

Nominal GDP

Not adjusted for inflation, “nominal” GDP in Q1 grew by 5.1% from Q1 2018. It was the fourth quarter in a row of nominal year-over-year GDP growth of over 5%. In terms of “current” dollars, not adjusted for inflation, GDP amounted to an annualized $21.06 trillion – “annualized” meaning that if the economy continues on this track for the entire year, total GDP for the entire year would be $21.06 trillion.

This was the BEA’s “advance” estimate that is based on still very incomplete data. The BEA will release its “second” estimate for Q1 on May 30, which will be based on somewhat more complete data. It is likely that today’s surprise jump will be downwardly revised a tad, which is a fairly common feature with surprise data such as this. And this second estimate will be followed by a “third” estimate, by which time everyone will have moved on.

And the Fed, oh my...

The Fed has vowed in a veritable cacophony to be “patient” in January and February, given the turmoil in the markets in December and the soft patch in the economy in January and February. This cacophony has calmed down a lot since then, and was toned down substantially in the minutes of the March 19-20 FOMC meeting that already put the end-of-patient on the table (see my fancy-schmancy Fed Hawk-o-Meter). This GDP report blows away part of the concerns about the economy, at least for now.

One of the other things that the Fed keeps its eye on is inflation, the bane for consumers whose income is being devalued. This is still a wildcard, but all kinds of consumer-facing companies have been bragging about price increases in their current earnings reports, and that they’re sticking.

Inflation in March, as measured by CPI, already bounced off the February lows, and if the prayers of Corporate America are being answered, will continue to bounce higher, reducing the dip in CPI that started mid-2018 to just another “transitory” episode. And those trying to justify a rate cut in this scenario sound to some of us like their brains were rotted out by too many years of too cheap money.

So sales of new houses finally tick up. ReadCut the Price and They Will Come: New House Prices Drop to December 2014 Level

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  75 comments for “I Just Hope the Fed Won’t See This: US Economy Has Blowout First Quarter

  1. Ppp says:

    And the dollar funding shortage, what about that?

    • Wolf Richter says:

      The “shortage” never existed. That was a silly misnomer. Borrowing dollars just got a little more expensive last year for risky borrowers. That’s all. Now it’s cheap again.

      • Bankers says:

        In the US maybe, but for some other countries this adds up I think.


        • Saltcreep says:

          I guess some such countries will at some breaking point simply forbid domestic entities to pay foreign denominated debts at existing rates of exchange. Possibly in conjunction with an introduction of a New Currency X, set at 1-1 to the USD or something.

          I certainly can’t see Xi or Erdogan or suchlike just knuckling under and accepting IMF loans with their attached conditions…

        • Wolf Richter says:


          The linked article… That’s the typical BS of “dollar shortage” (and I deleted the link). It goes like this: Because I don’t have enough dollars in my account, then there must be a global dollar shortage — Just nuts.

          There is no dollar shortage. The whole concept is nonsense. Some entities took huge dollar-denominated risks and are now over-extended and are having trouble. The rest of the world is awash in dollars.

        • Bankers says:

          Fair enough, but I would not label countries as entities, even if the borrowing was by entities usually it is sanctioned by nations as well as impacting national accounts. Actually my meaning was simply that for certain countries the previous flow of easy dollar finance has left those who over borrowed short of dollars, I was not trying to judge what the available supply “should be”, the flip side to that being that this may just be considered to be just because of a previous “oversupply” of dollars. The increase in rates is also labelled undersupply by many in the US , though there is no shortage of cash the margins are so fine that a fraction of a percent is understood as enough bring down the show.

          Anyway, the only reason we have a discussion like this is because rates are not properly set by market but instead by central banks, with the impression being that the quantity of dollars (or other currency) is available on tap, hence open to own speculation on what the amount “should be”.

      • ppp says:

        By shortage, I mean hoarding. Dollars are not being hoarded?

      • Ppp says:

        If that is so, then why are China’s commercial banks screaming for dollars?

        • Wolf Richter says:

          They’re screaming for dollars because they don’t have them. Tesla will be screaming for dollars too. They can borrow them, but they’d have to pay for them, and that get’s expensive, and it means that they’re exposed and have taken on too much dollar-denominated risk. There are plenty of dollars in the world, but companies and banks anywhere will go bankrupt if they don’t have enough dollars to pay their debts. What’s so hard to understand about this? Happens every day. To call this “dollar shortage” is click-bait nuttiness.

        • interesting says:

          “To call this “dollar shortage” is click-bait nuttiness”

          This is why I come here………logical analysis……..I’ve been wondering WTF this “shortage” was all about.

        • Seen it all before, Bob says:

          Thanks Wolf,

          I agree. “Dollar Shortage” is nutty.

          If I have a “Dollar Shortage” some tell me to stop being lazy and get another job.

      • Ppp says:

        BTW, you have been proved completely wrong on this. Nomura is predicting today that there will be a 50bps rate cut as early as this week. The US banking system has run out of liquidity. The basic problem is that business activity is grinding to a halt. Depression real soon as the market finds out the Fed has lost control of rates. Change your thinking.

        • Wolf Richter says:


          So if we don’t get a 50 basis point cut this week, are YOU going to change your thinking? I’ll try to remind you about it once we get the FOMC statement.

        • Broker Dan says:

          Have you been saying “depression real soon” for the past 10 yrs like the rest of the doomers?

          Still waiting on this so-called depression. Meanwhile I see friends and family doing better than ever.

        • Wolf Richter says:


          OK, I remembered to remind you….

          I just read the FOMC statement, and it sez that the FOMC didn’t cut its target range by 50bps, and not even 25bps. It left the target range unchanged, upon which the DOW dropped 250 points from intraday high to close. So time for you to “change your thinking.”

          BTW, I didn’t read the stuff Nomura produced. But if they actually said that the Fed would cut the target range by 50bps this week, they said this for one of two reasons:

          Either, they’re true morons.

          Or, they’re trying to force the Fed’s hand because they WANT a rate cut because they bet on it.

  2. Justme says:

    It’s rotted out, alright ;-) :-)

  3. IdahoPotato says:

    “Federal government spending on defense: +4.0%
    State and local government spending: +3.9%”

    So we are all socialists now. Good.

    • Unamused says:

      Not exactly. It’s like Nixon said: you’re all Keynesians now. Referring to federal spending, military Keynesians.

    • JB says:

      exactly what caught my eye also . And since much of the increase in governments contribution to GDP is borrowed money well what does that say about organic growth . Levered GDP growth the american way .

      • van_down_by_river says:

        The government will keep up the “fiscal stimulus” and GDP growth be damned the Fed will continue to steer monetary policy down a reckless loose path. For Fed members, loose monetary policy brings about popularity and extreme wealth as they exit through the Wall Street revolving door to a lavish life as a figure head shill (witness the corrupt position held by Ben Bernanke at an HFT firm).

        Amazing it took the country and the central bank this long to figure out we can ride through life for free. No matter how many dollars we splash around the rest of the world will give us products in exchange and our assets will just keep climbing. We get to enjoy the fruits of zero labor and enjoy the bounty others bring to our table. There are no consequences, the inflation the Fed unleashed only effects wage earners and savers (idiots) while everyone that matters receives more and more hard assets, unaffected by inflation. As Kudlow would say: we have a goldilocks economy and everything is awesome.

        Those left behind amount to 250 million insignificant whiners and losers, “dead enders” as Dick Cheney called them. Who needs them? If the 1% hang on long enough the 99% will drink one too many (figurative) Big Gulps, keel over and be out of the way for good.

        • Kasadour says:

          As cynical as your comment is, it is also spot on.

          I thought you were gone for good last time you posted here- I’m glad to see that isn’t the case. As much as I enjoy this website, and agree with its contributing writers, I felt you were treated pretty unfairly last time you posted here.

          So many of us have been waiting for justice for so long, and it never comes. These central bank thieves and frauds just keep on thriving. It won’t last. Hang in there and you’ll live to see the day when the 99% are vindicated.

        • Matthias Fischler says:

          With a 21 trillion dollar economy you’d think we could end the government debt, have prosperity for the average Joe, and solve the mired problems we face.

        • Dave says:

          I just wish we could write into the social contract they the critics of these policies won’t also have to Patna for the fallout.

        • Jack says:

          No Van!

          History shows that NOT all the 99% ‘ers are drinkers!

          There is a substantial core that detest “ drinking “, and value hard work and core human values.

          These “ imbeciles” ( in the eyes of the current crop of those whom fancy themselves as being smart) will just continue to tag along and produce the goodies !

          But that’s not going to happen.

          History tells us it will end in screams.and heavens forbids

          Deaths in the streets.

          In a milder scenario though,
          Those producing the goods will stop exchanging them for the “ furphy “ Dollars which will trade at lesser value than your toilet paper.

    • Sinbad says:

      I think that Government spending and non CPI inflation are the only things keeping the US out of recession.

  4. Old dog says:

    “One of the other things that the Fed keeps its eye on is inflation”

    Wolf, as you have pointed out in this forum, the measurement of inflation is tricky. I would imagine that the economists at the Fed look at dozens of indicators and separate the ones that are cyclical from the ones that signal trends ahead.

    Having said that, it seems to me that there’s a fair amount of voodoo calculus and fuzzy math in the equivalence process. Also, people in the 80s didn’t use as much credit as they use today; so the cost of financing that credit ought to be added to the cost of an item. As far as I know, it is not.

    So the question is, how much faith do you have in the correctness of official inflation figures?

    • Unamused says:

      =>the cost of financing that credit ought to be added to the cost of an item. As far as I know, it is not.

      Americans might not be spending their brains out if they knew how expensive all that cheap useless stuff really is. I could be wrong, depending on the condition of what remains of the little gray cells.

      Debt is not a component of GDP calculations either. It’s like financial statements which include things like revenue and assets but not liabilities. One could argue with perfect honesty that an economy where debt in each sector is increasing faster than spending in each sector and where fixed assets are rotting away is actually shrinking, and not growing, contrary to the intentions of your official gaslighters. Its financial statements are dishonestly organized to hide the fact that the US economy is being liquidated like a Sears or a Toys ‘R’ Us, using similar techniques of debt overloading and financial extraction.

      The bad stuff is always paraphrased the footnotes with maximum opacity, like any publicly-traded corporation.

      Most people are unaware of it, but the biggest owner of golf courses in the world is the US military, costing no less than $600,000 per year each but priceless in terms of officer morale. Add up all the waste and it becomes easy to understand why your transportation infrastructure is reverting to gravel.

      • Iamafan says:

        But debt usually leads to consumption or investment, hopefully productive.

    • DawnsEarlyLight says:

      ‘Death by a thousand cuts…’ The FED’s accepted 2 percent inflation rate (gag) and moderate (lol) interest rates might do a body good in the short term, but….. no matter what the math, the body counts (debt) will increase.

  5. Vimal says:

    Out of curiosity, which categories in the BEA-linked PDF captures inventory pileup?


    • Wolf Richter says:

      Page 2: “accelerations in private inventory investment”

      • Vimal says:

        Thanks, that’s in the descriptive section. Which entries in Table 1 capture this acceleration? Line 14 “Change in private inventories” doesn’t have any numbers. (Just learning :))

  6. OutLookingIn says:

    The “estimate” of the GDP number from the BEA, which is due for a revision on that “estimate”, with another revised version of the “estimated” revision, is like looking in the rear view mirror of a car.
    When all the smoke and mirrors are removed and the BEA belatedly calls the start of an official recession, a full six months or more will have passed.
    I predict that this “official” start date will be the mini-collapse suffered in December 2018. Therefore look for the official announcement sometime this mid-late Summer. Could be even later, as all the plates must be kept spinning until after the election season of 2020.

    • JohnnySacks says:

      The plates fell a couple months too soon back in 2008. I shudder to think of the consequences of proper timing.

  7. Bankers says:

    When there is not much debt or leverage it is like balancing a plank on a semi-circle, when there is a lot it is like balancing it on the tip of a pyramid where every small adjustment risks upsetting everything. Traditionally transactions were completed in real time to a fine point, with only a little debt to soften that reality. Now nearly all transactions are carried out in debt, but they are layered and together create a point that is very sharp relative to the combined size of the lever.

  8. a reader says:

    With every sphere of the world economy saturated with debt, the new rounds go to the borrower of the last resort: the governments.

    All you frugal savers: don’t worry, the government will get into debt in your name.

    Then they’ll come back with their new and improved taxes: “We (i.e. as a society) need to pay our debts”.

    • OutLookingIn says:

      “We need to pay our debts”.

      According to the latest estimate that would be:
      $220,500,00 for every man, woman, and child in America.

      • Bankers says:

        I just sometimes look human.

      • Unamused says:

        The 99% are bankrupt. They just haven’t been notified yet by US corporations, operating overseas to avoid friendly fire.

        The asymmetric class war was conducted in such a way that the adversary was totally unaware the war was completely lost while they were away on a perfectly lousy vacation paid for on credit. Mostly what you’re seeing now is just the mopping up operations.

  9. A victory lap is called for, they backed off the rate hikes and GDP rebounded, and we avoided a recession. Not hard to see how to spin these numbers. Energy is the US largest export and DOD is the largest user. Is there a war going on somewhere we don’t know about?

    • Unamused says:

      =>Is there a war going on somewhere we don’t know about?

      The US is presently conducting at least five undeclared forever wars, all very profitable, except for you, costing a quarter billion per day, not counting its ongoing war on middle-class Americans who were defeated in 1987. Your continuing financial support is very much appreciated.

      • safe as milk says:

        depends how you define war. if you go by actively engaged in military hostilities, it’s more like seven:
        1) iraq
        2) afghanistan
        3) libya
        4) somalia
        5) niger
        6) syria
        7) yemen

    • Briny says:

      ARFICOM, i.e. Africa. I see tidbits here and there, specifically about the lack of coverage, but mostly under the RADAR. It’s tucked away under the Pentagon’s Contingency Operations budgeting.

    • Seen it all before, Bob says:

      The DoD is the biggest work funded welfare now that the Unions have died.

      DoD funding is growing and that is funding the engineers, techs, assembly line crews, admins, etc. It is funding where there is no other funding.
      Whether it is useful or not is up to the polticians and whether they want war or not.

      The other option is to increase welfare to a working class level.

  10. RoundAbout says:

    Must be time to raise rates.

  11. OutLookingIn says:

    The World Trade Organization (WTO) expects a slowdown in global economic growth.
    To reduce from 3.2 percent in 2018 to 2.8 percent in 2020.
    This year global trade to scale back to 3.7 percent from 3.9 percent in 2018.
    Granted, these movements are small, however when considering these are global movements, the overall trend is undeniable.
    Tougher times are coming.

  12. SocalJim says:

    Clearly, the trade war is working … look at the exports vs. imports. Furthermore, the 1st quarter GDP is the weakest of the year, so this is bigger than the 3.2% print. I see a second term if the economy keeps cooking. The Democratic’s socialism message will only work if the economy slows sharply.

    Personally, I was expecting slowing growth with inflation. Clearly, it looks like decent growth with inflation might be a better investment scenario. Perhaps stocks will outperform leveraged real estate.

    • RangerOne says:

      There are very few negative or positive events that have any significant impact on a second term for the President.

      I would just expect him to be the favorite to win unless an opposing candidate builds a whirl wind campaign. Or there is a soul crushing recession that hurts enough people to make them doubt the administration.

      I don’t think either of those events are likely. An average voter doesn’t give a shit about import export numbers or GDP.

      • Just Some Random Guy says:

        “An average voter doesn’t give a shit about import export numbers or GDP.”

        Maybe not directly. But an average voter cares whether he/she has a job and whether he/she can afford a new house, a new car, a nice vacation – and votes accordingly. A sustained 3%+ GDP = easy Trump win next year. As ole Bubba J Clinton said (or was it one of his lackeys?), it’s the economy stupid. As true today as it was then.

      • SocalJim says:

        My opinion is even a slight recession can end the president’s re-election. Even though I lean right, I recognize reality. His big promise is the economy and he better deliver. Otherwise, he is done. He has too many warts to survive a recession, even a small one.

    • GP says:

      Second term would be impossible if Fed loses patience and starts raising rates at just the ‘right’ time.

      • SocalJim says:

        I would extend your concept a little further. Even if the ECB, BOJ, or PBOC tighten at just the ‘right’ time, a second term would be out of the question. And, they all hate him.

        • Petunia says:

          I do agree with you that they all hate him, however, the fact remains that no matter what they promise, he can point to them having done absolutely nothing good for 30+ years. Now that’s a record you can vote against, again.

        • safe as milk says:

          @socaljim dream on… the ecb and boj will never significantly tighten again ever.

  13. Senecas Cliff says:

    Does the “old fashioned real” economy even matter any more? Brick and morter retail down, Boeing in trouble, auto sales and manufacturing down, Intel’s gloomy conference call yesterday, housing construction down, and Apples phone sales down. Or are we just like Wiley Coyote suspended in air over the edge of the cliff, waiting for reality (gravity) to catch up with us.

  14. akiddy111 says:

    Upon reading this, i hope nobody was foolish enough to hold the S&P 500 all these years.

  15. DoubleD says:

    Slowing global growth was a big problem in Q4 2018. Now 4 months later everything is fantastic again. Hard to believe? Indeed it is. Q1 GDP Growth is 3.2% because that’s what the BEA says it is. “This GDP report blows away part of the concerns about the economy, at least for now”. So GDP can blast up just like the stock markets have & everyone is giddy again. That’s what they want you to believe. The FED knows they can’t raise rates again or the gig really is up. Better to keep the masses confused & complacent.

    I’m keeping my eye on Housing & DXY (the US Dollar). The dollar has been getting stronger which is not a precursor to higher inflation.

  16. timbers says:

    “The Fed has vowed in a veritable cacophony to be “patient” in January and February, given the turmoil in the markets in December and the soft patch in the economy in January and February. This cacophony has calmed down a lot since then, and was toned down substantially in the minutes of the March 19-20 FOMC meeting that already put the end-of-patient on the table…”

    Almost makes you wonder why we have those reports of Powell promising no interest rate increase for all of 2019. Looks to me like Fed patience is a one way street.

  17. Matt P says:

    Imagine how much better the economy would be doing if that DOD spending were on anything else. Instead we spend on the DOD and that wealth is then destroyed somewhere else instead of say giving everyone healthcare to free up dollars that would be reinvested in the economy.

    • OutLookingIn says:

      The USA spends more on the military than the worlds top twenty five countries combined. Twenty four of which are US allies!
      DoD – Department of Defense is an oxymoron. Defending against whom?
      With over 800 US foreign bases scattered around the globe, this is maintenance of empire.

  18. Mike says:

    Blowout First Quarter because of profit or money taken away from workers. Big margin always means underpaid workers….and sooner or later this will backfire…

  19. Mark says:

    Bond market isn’t a believer.

    If the economy is looking so rosy, why is the 10Y Treasury at 2.6% and the yield curve from 3 months to 5 years flat to inverted?

  20. ooe says:

    the quarter grew because of inventory build up; real private demand was only 1.30 %. this means the 2nd quarter will slower as companies work off the inventory. the economy will be tanking by the fall.

    • RoundAbout says:

      Perhaps, the increased inventory was caused by companies attempting to front run anticipated tariffs. Makes one wonder if there is a China deal, these companies have more than enough already.

  21. NY Geezer says:

    Gross Domestic Product (GDP) is supposed to measure of expansion in the economy But it is a most imperfect metric for today’s service, monopolistic and military weighted economy. GDP can still make substantial gains from the corrupt pricing strengths of the monopolies, duopolies, military industrial complex and health care and health insurance industries’ generally at the expense of vulnerable consumers and the public at large while the majority of the economy is stagnating and assets are losing value.

    The Fed Reserve’s use of higher/lower interest rates and more/less QE is a regulation of the stock and bond markets, not the GDP any longer.

  22. Greek says:

    As you follow autos closely as well as GDP issues I wonder if you would comment on Larry Kudlow’s recent statement that the rise in GDP inventories is from unsold automobiles.

    Top White House economic adviser Larry Kudlow said the inventory build was mainly in autos, and wouldn’t be a problem because consumers would be opening their wallets.


    • Wolf Richter says:

      I don’t comment on Kudlow’s nonsense. I wouldn’t have time for anything else :-]

      • d says:

        Sad really

        people (Creatures) like kudlow cramer the Kardoosians Etc talk and do trash all day and make Millions whilst those interested in speaking truth, grub for crumbs.

        What this says about modern society is extremely disconcerting.

      • Mr. Knoss says:

        Not to mention Trump’s nonsense. Kudlow called for an immediate 0.5% rate cut from the Fed and Trump Trump’s that by groveling to the Fed for a 1% rate cut.

        What a circus.

  23. Ididsa says:

    “And those trying to justify a rate cut in this scenario sound to some of us like their brains were rotted out by too many years of too cheap money.”

    And rotten insatiable greed. Does Kudlow even care enough anymore to even try to be a bit more tactful in what he says. And the Administration is still asking for QE, and the Vice President jumps in on the bandwagon. It’s like a circus of idiots. There’s so much stupidity in that they really think no one knows what they are trying to do.

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