Morning Report: GDP falls in Q1

Vital Statistics:

S&P futures4,21837.25
Oil (WTI)101.82-0.09
10 year government bond yield 2.85%
30 year fixed rate mortgage 5.32%

Stocks are higher this morning despite an awful GDP print. Bonds and MBS are flat.

GDP fell 1.4% in the first quarter, according to the Bureau of Economic Analysis. This was well below the Street consensus, which predicted a gain of 1.1%. Personal Consumption Expenditures rose 2.5%, which again was below the Street consensus of a 3.4% increase.

Decreased private inventory investment and declining government spending (i.e. the expiration of COVID-related stimulus and assistance programs) subtracted from growth, while increases in consumption and construction helped increase GDP. Imports rose, which again is a negative factor.

The decline in inventory investment was driven primarily by autos, which can be volatile although a chip shortage is impacting low inventory levels. The increase in personal spending was driven by healthcare and was offset by decreased spending on goods.

Overall, this report seems out of step with what the Atlanta Fed’s GDP Now index was predicting. I suspect the muted reaction in the markets (interest rates didn’t move) is driven by expectations that the number will be revised upward in coming reports.

That said, even if GDP gets revised positively, the combination of stagnating growth and high inflation puts the Fed in a pickle. If unemployment starts ticking upward, it might be time to dust off the misery index.

Separately, initial jobless claims fell to 180,000 last week. These are still incredibly low numbers, which indicates the weakness we are seeing in the GDP numbers aren’t filtering through to the labor market.

Profits on the median-priced single family home declined in the first quarter of 2022 from 51.6% to 47.2%, according to data from ATTOM. This is still much higher than historical averages, however it might indicate that the housing market is beginning to cool off.

“Home prices simply can’t continue to go up as rapidly as they have for the past few years,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The combination of higher prices, rising mortgage rates and the highest rates of inflation in 40 years may be pricing some prospective buyers out of the market, which means we may begin to see lower sales numbers. Ultimately, as affordability worsens, price appreciation should slow down, and we may even see modest price corrections in some markets.”

The report said that the typical home seller had owned the property for only 5.7 years which was down from 6.8 years a year ago.

The first time homebuyer is being sidelined by rising mortgage rates. The 200 basis point increase in mortgage rates makes a big impact on affordability. At the end of 2021, the median home price was $346,900 and the average mortgage rate was about 3%. For a typical mortgage with 20% down, the principal and interest payment works out to be about $1,170. At 5%, that payment jumps to $1,490. Big increase.

“Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices. The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months,” said MBA associate vice president Joel Kan in a Wednesday statement. 

8 Responses

  1. He’s here all week.

    Tip your server.


  2. For the most part this is true.


    • Fair enough. Clearly Dems are more representative of their deep base than the Republicans. But that only goes so far and isn’t a selling point of independents or swing voters.

      And the people who feel most represented are white college-educated elites. They keep whittling away and their demographics-is-destiny coalition.


      • The trade off is that Republican politicians are afraid of their base which helps to keep them in line.

        Democratic politicians have contempt for theirs.


        “Can’t govern like that.” misses the point. For the most part, Republican voters don’t want to be “governed” at all. Republican voters primarily want Republican politicians to stop Democrats from governing them.


        • This is an excellent point. Also, I’m feeling that independents and swing-voters generally aren’t that interested in being governed, they just change their minds fairly regularly about which team will do the most to interfere or make a mess in their daily lives.

          I am astounded by the number of people (they can’t all be astroturf) who seem to subscribe to the idea that there’s nothing to see here when things are on fire. Inflation? No big deal. Awful foreign policy? No, it’s great! Senile president who has to be, for any rational person irrespective of politics, even less confidence-inspiring than Trump? No, he’s fine, he likes ice cream!

          There was a time with negative GDP growth and high inflation would have been generally agreed on as bad, I feel like. Where most of the admittedly limited mainstream news would have taken a “if it bleeds it leads” attitude. Of course there was also a time when journalism, while always shaping narratives, wasn’t quite so much just opinion journalism. We seem to be at a point where “news” is primarily “journalists” sharing their opinions about tweets. There seems to be no real division between the editorial page and the “news”.

          I feel a lot of that has to be what is surfaced through the MSM and social media. It *seems* like most of the world is in a bizarre, fact-free partisan bubble because that’s what gets all the attention on social media and in the press. I’m thinking that at some point that just becomes noise to a whole lot of people–but, again, the press and present day social-media give the folks in power the idea that the buy in to their nonsense is much higher than it actually is.

          But, yes, of the real-world options I prefer a house divided. I’m good with a Republican president and a Democratic congress or vice-versa, and prefer it to what we have now. And have no expectation that the GOP controlling all three branches would lead to anything positive. Because the Republicans aren’t going to do much of anything to make sure we’re governed less–they’ll just maybe do a little bit less than the Democrats when it comes to governing us more.

          TL;DR: Both parties suck and I hate social media and the press.


      • Re: Independent voters:


        • This election is not about individual politicans, IMO. It will be about Team Red versus Team Blue.

          And I think Team Blue has pissed off just about everyone over the past couple of years.


        • Certainly that will be true in the mid-terms. Things feel a lot more negative for the Dems than even in 1994 (the last time Republicans thought it would be a good idea, collectively, to give voters something to actually vote for).

          So I wouldn’t be surprised by a red tidal wave and unexpected wins and few or no unexpected losses for Republicans. I don’t particularly like most of the GOP pols but I’m voting a straight Republican ticket.


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