GDP Part II, This Changes Everything

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As we noted yesterday, today’s GDP Report is critically essential. It presages the Federal Reserve’s future actions and has tremendous political implications for the upcoming Presidential Campaign.

Briefly stated, the report shows that the economy grew at a paltry 1.6% for Q1 2024, far below even the most bearish Wall Street estimate and less than one-half the growth rate of the quarter before. It’s hard to overstate just how dismal this report is.

For many, the report may have come as a complete surprise following the supposed positive New Durable Goods Orders reported yesterday. While the financial press basked in the reported 2.6% gain in New Orders for March, they failed to see that this gain was in the context of a very tepid 0.3% rise for the year — a rise that was most likely due to inflation pressure rather than any real gain in the overall economy.

Overall, the latest GDP numbers reveal that we’re ending the stimulative effect of Biden’s increase in Government Spending (Build Back Better). While the spending numbers remain astronomical, spending from Washington is no longer accelerating. Government spending has topped out, and the classic Keynesian stimulus is diminishing.

The implications of all this are profound.

The Federal Reserve will be the first to feel the heat. Its high-interest rate policy now comes into question. How long will the Fed be able to defend higher interest rates in the face of a slowing economy? And make no mistake — a GDP reading of just 1.6% is just one revision above stall speed. We’re not far from recession territory.

But it will be the Biden Campaign for Reelection that will really feel the heat. One of the cornerstones of Biden’s bid for reelection has been the claim that the economy is strong. That claim just went out the window. It is now clear that this isn’t a strong economy. It’s an extremely fragile economy that relies upon increased fiscal stimulus, that is, government spending. Here, we see that as government spending has plateaued, economic growth has slowed dramatically.

Biden’s last remaining claim of economic growth is the Stock Market. But even here, there are signs of danger ahead. The tepid performance of the Mag 7, those largest capitalized stocks, reveals that even the vaunted Stock Market may experience difficulty in the days ahead.

When you add all this together, it’s becoming increasingly challenging for the President to defend his economic record.


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