Economic activity increased in the first three months of this at a substantially stronger pace than expected. Most models and analysts underestimated the 3.2% advance in output in Q1, which marks a strong improvement over the 2.2% rise in last year’s Q4. Today’s update effectively puts to rest the fear that recession risk for the US economy was rising in the early months of 2019.
Today’s report also affirms that the US stock market’s rebound this year, following the sharp selloff in late-2018, was well-founded. Although Mr. Market’s volatility in recent years has been confusing, it’s fair to say that the crowd’s latest revision to an upbeat outlook aligns with today’s GDP data.
The Q1 report also confirms the analysis that the US economy has been stabilizing, or better, in 2019 after a slowdown in last year’s second half. The one caveat, if we can call it that, is that the nominal one-year GDP trend (before adjusting for inflation) slipped fractionally in Q1. Output growth eased to a 5.1% year-over-year advance, marking the second round of quarterly deceleration.
In real terms, by contrast, the one-year trend resumed its upward march after briefly and incrementally stumbling in Q4. GDP advanced 3.2% in Q1 vs. the year-ago quarter – the fastest pace in nearly four years.
The report “helps offset fears of slowing global growth,” notes the managing director of global market research at FTSE Russell. “At a time of lingering US-Chinese trade uncertainty and weak economic data everywhere from Germany to Korea to Japan, strong U.S. data acts as an insurance policy against further global economic weakness,” Alec Young tells CNBC. “And with inflation still subdued, it’s too early to start worrying about Fed rate hikes again.”
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