Monday, March 28, 2016

Bring On the Stagflation: "Atlanta Fed’s ‘GDP Now’ Plunges; Predicts Just 0.6% Q1 Growth"

Combined with slowly rising core inflation this is setting up to be a mess.
From Barron's Income Investing:
The Atlanta Federal Reserve‘s tool for forecasting first quarter gross domestic product took a steep drop Monday, falling from 1.4% to just 0.6%. That’s well below the consensus of economist opinion, which predicts growth for the current quarter between roughly 1.4% and 2.7%.

The GDP Now drop was due to the decline in net exports and decrease in personal consumption expenditures released Monday. The Q1 GDPNow estimate was as high as 2.3% in mid-March, but has been falling with each key release. Last week the forecast fell from 1.9% to 1.4% because of weak numbers in the durable goods and housing reports.

The U.S. economy grew at at 2% rate in the third quarter and a 1.4% rate in the fourth quarter, according to the Department of Commerce’s final estimate released on March 25.

The advance estimate for the first quarter won’t be out until April 28. The delay is the reason why the GDPNow tool was created.

Here’s how Mizuho Securities USA economist Steven Ricchiuto analyzes Monday’s economic reports that led to Monday’s steep drop:
The net read on the economy from these three data releases is that the economy remains stuck in a 1.75% to 2.25% growth band....MORE
And from Barron's confrères at the WSJ's MoneyBeat:

Inflation Numbers Don’t Change the Math for the Fed
Crude-oil prices are rising, and gas is going back up, but it hasn’t filtered down to the inflation numbers yet. That most likely means no added pressure on the Federal Reserve.
This morning, for the 46th month in a row (3.8 years if you’re counting at home),  the government released figures on inflation that were below the Fed’s self-imposed threshold of 2%. The core personal consumption expenditures (PCE) index was up 0.1% from a month ago, and 1.7% from a year ago, below the Fed’s 2% target. While the 1.7% figure is highest since late 2012-early 2013, it is also flat with January’s level.

It is also still below the most recent reading on inflation via the consumer price index. Core CPI was at 2.3% in February from a year ago. But that figure in the Fed’s eye is less important than the PCE figure.

How far the Fed is willing to let inflation run is a source of some consternation. Chairwoman Janet Yellen fielded questions at her press conference two weeks ago about whether the Fed was consciously going to let inflation overshoot its target, a sort-of make-up call if you will, and what that means for the bank’s credibility.

The PCE index is very similar to the CPI index, but there are subtle differences. PCE measures the change in prices of goods and services, while the CPI measures “out of pocket expenditures.” The PCE index gets its data primarily from business surveys, while the CPI relies mainly on consumer surveys. There are other differences in the formulas used and weights given to various items. The Fed looks at both, and other measures of rising prices as well, but has long been adamant that the core PCE index is its favorite gauge....MORE
"The Fed Is Going to Let Price Inflation Run Hot"