First quarter GDP was revised down to -0.7 percent from the initial +0.2 percent estimate. Is it time to panic? Not really. The source data shows that the port strike had a bigger negative impact on the economy than originally thought.
Nevertheless, this is the first contraction in GDP since the first quarter of 2014 when GDP fell -2.1 percent due to the polar vortex and the fact that half the U.S. was covered in ice.
Here is the updated infogram of U.S. GDP. Hover your mouse over the line to see the underlying data.
Deutsche Bank's Joe LaVorgna predicted back in February that the port strikes could reduce Q1 GDP by up to 1 percentage point.Source: www.businessinsider.com
Folks, I'm not too worried about Q1 2015 GDP. Notice that it marks the cycle low. Basically the cycle low was a bit lower than originally thought, it's still the cycle low. Every year for at least the last 5 years, the GDP puts in a cycle low in either Q4 or Q1. The GDP rises in Q2 and Q3. What I'm looking for is the swing high in Q2 and Q3. If the Federal Reserve's transitory thesis is correct, we would expect a big swing move up in GDP in either Q2 or Q3.
Also, keep in mind that the port strike is over so that was indeed a transitory factor that pushed down the GDP by as much as -1 percent.
Remember, good traders are not Chicken Littles running around claiming the sky is falling. Let the market guide your thinking. Clearly the major indices are NOT showing that the sky is falling. Ignorant traders say, “See this market is fake! How can the market not sell off with a negative GDP number? This market must be so overvalued”. Smart traders know that port strikes pulled down the GDP by as much as -1 percent and that the port strikes are over so that indeed was a transitory factor. Remember, the market is betting on the future GDP, not the past.