Economic truths are seldom one-dimensional

Digging into the different subcomponents of the GDP reveals a clearer image. The “inventory” component accounted for most of the negative headline figure, as it alone trimmed no less than 1.6% of it, after chipping off a mere 0.6% in the original estimate. One possible interpretation for this is that businesses expected muted future demand, and were de-stocking in order to avoid being left with merchandise. Another interpretation would be that demand was larger than expected at the start of the quarter, and that alone has led to the de-stocking. 

The latter explanation is supported by the fact that the "personal consumption" component has contributed an annualized 2.1% to the product. Naturally, in this case, diminishing stock inventories would need to be filled, leading to an unavoidable increase of future GDP. Also supporting the premise that the negative print was a one-timer was the fact that Government expenditure was revised downwards to chip 0.15% off the nation's product.


The weekly Initial Jobless claims was released at the same time as the GDP. Unlike the GDP, Initial claims indicated increasing demand at the labor market as it saw exactly 300K weekly claims submitted, from a previous print of 326K. The following day even saw the U.S. Bureau of Economic Analysis report of a 0.3% increase in April’s Personal Income. Additional positive indicators published on Friday included the Chicago Business Barometer rising to a level of 65.5 from a previous print of 63.0, as well as the University of Michigan’s Consumer Confidence Index presenting an upbeat print of 82.5, from a previous 81.9. Combining the above with the fact that equity markets traded noticeably higher depicts the fact that economic truths are seldom one-dimensional. 

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