THE BASIS POINT

GDP Growth Anemic at +0.5%.

GDP (1stQ2016) 

– Real GDP quarter/quarter seasonally adjusted, annualized  +0.5%. Previous was +1.4%.

This is the first look and has 3 months of data only for consumer spending. Imports, exports and government spending have 2 months of data and one month of estimate.  Consumer Spending was up 1.9% while business investment was down. Business investment had the largest drop in the past 7 years.

The largest drop in Consumer Spending was in auto purchases.  The subprime auto loan bubble ended.  The second largest contributor to increased consumer spending was in healthcare. In fact the entire gain in GDP was equal to the gain in 2 things – the purchase of recreational vehicles and healthcare.

Average GDP growth for the past 19 quarters is 1.94%.  If we look at only raw jobs numbers and contained inflation the economy appears to be doing well but the overall health of the economy is best measured by GDP which is anemic. Worse yet the Fed has done everything in its power – low rates and enormous expansion of money supply – to get the 1.94% average growth.

The problem with the economy is not monetary and we should not be looking to the Fed for a solution.

It is difficult to see how the Fed can benefit the economy by raising rates in June with such low economic growth.

Initial Jobless Claims (week ended 4/23/2016)

– New Claims seasonally adjusted  257,000. Previous was 248,000
– New Claims  unadjusted totaled 245,189 an increase of 2,789 from previous
– 4-week Moving Average  256,000.  Previous was 260,750