First-Quarter GDP Growth Slows to 1.6%, Well Below Forecasts… GDP growth dropped 50% from the third quarter, even though prices moved higher. The combination raised the specter of stagflation.
What it means— But things were going so well! When the GDP numbers came out, investors replied with a big raspberry. Federal Reserve Chair Powell told us last week that higher rates might hang around for longer, but that was okay as long as growth remained on course. Declining growth with higher rates decidedly is not okay. If this turns into true stagflation, meaning higher prices coupled with higher interest rates but no economic growth, consumers will be very unhappy.
In the 1970s, President Nixon let the U.S. dollar float, which devalued the buck just as we dealt with the oil crisis. This time, the dollar already floats and the federal interest cost on outstanding debt just pushed above $1 trillion. We pay more interest on debt than we spend on defense, and it’s going higher. And that’s not good.
March Personal Consumption Expenditures Index Up 0.3% for the Month, Up 2.7%Over Last Year… The core Personal Consumption Expenditures Index (PCE) rose 0.3% for the month and 2.8% for the year.
What it means— It could have been worse, or at least that’s the way investors took it. The whisper number on Thursday made people dread Friday morning, but the actual numbers were just a tad higher than expectations. But the funny thing about PCE is that it’s supposed to capture real spending quickly. If we turn to cheaper goods, then PCE reflects falling inflation because we’re buying store-brand cereal. When the PCE hugs 3% for the year and the monthly growth is 3.6%, it means the cheaper or substitute brand also costs more. Again, this makes consumers unhappy.
New-Home Sales Up 9% in March, But February Sales Revised Down From Negative 0.3% to Negative 5.1%… New-home sales reached an annualized rate of 693,000.
What it means— There are still home buyers willing to take the plunge at higher prices and with higher mortgage rates. The median sales price jumped from $400,500 in February to $430,700 in March. Inventory fell 5.7%, showing that builders are still in control.
As long as existing home inventory remains scarce and mortgage rates don’t change much, the market should bump along. The longer mortgage rates stay near 7% and existing sales inventory hugs just one million units for the entire country, the more antsy sellers and buyers will become. We’ve built an incredible base.
Japanese Yen Blows Through 155 per U.S. Dollar, Almost Reaching 157, Hitting Lowest Rate Since 1990… The yen fell through what were supposed to be resistance levels, with no hint that Bank of Japan (BoJ) officials will intervene.
What it means— Recently, we suggested that the carry trade (buying in yen and investing in U.S. dollars) might be at its end. So much for that. Despite hinting it would intervene, the BoJ is nowhere to be found. Why won’t the BoJ allow the yield on the 10-year Japanese bond to climb from 0.70% to at least 1.5%. Holding rates this low drains value from the yen, which drains value from the Japanese, making them poorer. Perhaps BoJ ministers worry that the carry trade will reverse with such force that it will send a shock through the economy. If that’s a concern, then making the problem bigger isn’t a good strategy.
U.S. Total Fertility Rate Fell to a Record Low in 2023… The number of children that the average woman is expected to have over her lifetime, the total fertility rate (TFR), fell to 1.62, the lowest number since the government started tracking it in the 1930s.
What it means— This has been the trend since 2007, so it’s no surprise. The big declines are in the 15-19 and 20-24 age groups. The drop in teen mothers has been met with enthusiasm, while the drop in moms in their early twenties is cause for concern, at least from a demographic point of view. With immigration, our population will continue to grow. The populations of Northern European countries, Japan, and China will not. We’ve never been in this situation before on purpose. The last time global populations fell dramatically was in the dark ages. That didn’t play out well.
Belgian Man Arrested for Drunk Driving Claims his Body Creates Its Own Alcohol… The man was acquitted when three separate doctors confirmed a rare condition called “gut fermentation syndrome,” or “auto-brewery syndrome.” The condition is not present from birth; it develops in people who have diabetes and are obese. The report claims the condition is very rare and can present with symptoms such as slurred speech and difficulty walking. Since this is real, as Reuters reported, why haven’t he and other sufferers of auto-brewery syndrome been denied drivers’ licenses?
Data supplied by HS Dent Research
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What do you do?” ~ John Maynard Keynes
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