GDP Update By: Gabriel PotterMBA, AIFA® 2014.05.01

The Commerce Department reports that the US economy grew at an anemic pace – 0.1% - in the first quarter.  The (how many?) economists surveyed by the Wall Street Journal estimated 1st quarter growth to be closer to 1.1%.  Given these results, you’d expect the market to plummet today, since the results were weak and, more importantly, below expectations that ostensibly have been priced into the market.  Instead, the market has barely moved.  At the time of this writing (around noon on April 30th) the market is even slightly positive.  Why?

Understand that the 1.1% Gross Domestic Product expectation was already an estimation of weakness.  Even a mature developed market can be expected to reach 2% growth target.  Expectations of economic growth were already limited because of an anticipated retail slowdown as consumers shift discretionary income towards energy, due to an unusually cold winter, and health-care costs due to the mandatory nature of the Affordable Care Act (ObamaCare).  The reasons for the slowdown were already understood, but the impact wasn’t precisely measured.  Still, the story from the data is consistent with expectations.  There were a few negative surprises, like exports falling 7.6% as demand weakened for European and Asian products. However, the US look more resilient comparatively.  In totality, the report doesn’t actually change aggregate expectations for a bumpy, sub-par ride in the market.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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