There was no question the economy is soft, but the advance release of the first quarter of the U.S. Gross Domestic Product (GDP) hit like a punch to the gut. The headline number of 0.2% is simply demoralizing and it has been in freefall since the third quarter of last year.
However, the number would have been much higher if it was not for the private inventory build of $100 billion to go with $80 billion in the third quarter and $82 billion in the second quarter.
Will consumers buy all this stuff? Personal savings surged to 5.5% from 4.6% in the fourth quarter and 4.9% a year earlier. The most recent consumer confidence number from the Conference Board was an unmitigated disaster. What's driving the swift mood changes that see months of steady, but cautious improvements wiped out in a second?
The news set the tone for the Federal Reserve, which issued a statement that actually mitigated the carnage that saw the Dow off 156 points. Coming into the session, the consensus was 96% for a hike in September. I think 2015 can officially be taken off the table.
Even though the market stopped moving lower as the Fed rate hike is now pushed out, investors have to be concerned if there is any way to pump an economy that’s deliberately held back from higher taxes and the administration’s war on business.
Greenback Stumbling
The strong dollar has crushed corporate earnings. Thus far, it hasn’t sparked extra spending or any enthusiasm from Main Street. After forming a recent double top, the U.S. Dollar Index (USDX) is now tumbling hard and broke through its 50- day moving average. The rapid decline of the dollar without the aid of central bank assistance is worrisome. Let's face it, the economy is just barely moving along. The assumptions of a miraculous second half-rebound are being tempered.
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For me, it's simply frustrating because we have the most amazing businesses in the world, best practices, and an opportunity to take global shares since rival nations can only compete on money-printing gimmicks.
Moreover, there is a serious attempt to alter our DNA, and while it's not working; it has created hesitation and pauses that's resulted in the most morbid recovery.
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