Over We Go

This morning’s GDP report was very bearish. Although the headline number appears strong, upon closer inspection it turns out to have been largely inventory building. Ex inventories, economic growth dropped sharply to 0.8% and even that was based on a highly suspicious 0.4% deflator. Retail sales reports for January so far have been punk (yes, I know, weather, blah blah blah. Look, punk is punk) showing that consumer momentum has been largely lost, which is emphasized by an unsustainably low 4Q savings rate of 3.7%. Much of the fourth quarter inventory build is likely to come right out again in first quarter so there is a pretty good probability that the first quarter GDP growth rate will have a negative sign. No doubt the cry of “Man The Pumps” is going out at the Fed and the ECB as I write.

Sometimes the pumps just can’t handle it. This is one of those times.

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