Even Wall Street’s Biggest Permabulls Are Throwing In The “Recovery” Towel

When 2015 rolled around, Wall Street’s best weathermen, pardon, “economisseds” eagerly proclaimed that growth in 2015 in general, and Q1 and Q2 in particular would be superb, “above consensus” and on an “escape velocity” by which we mean a continuation of the Q3 GDP surge courtesy of Obamacare (they completely ignored the pervasive snowfall that was blanketing the Northeast around the same time, on which 3 months later they would blame why they were so very wrong).

Instead what happened yet again was another year of utter humiliation for said weathermen, pardon “economisseds” when Q1 GDP did, well, this.

 

 

 

In other words, a carbon copy replica of what happened last year. Well, not quite.

Unlike last year when every single weatherman, pardon “economissed“, quickly declared the collapse in Q1 GDP from an initial consensus of 3% to an abysmal -2.5% was due to the weather, and not due to a dramatic tightening in Chinese end demand, this time there is suddenly no silver lining, and one after another, the economisseds are lining up to say that, ooops, they were all wrong.

We start with everyone’s favorite permabullish economissed, Groundhog Phil’s nemesis, Joe LaVorgna. His initial Q1 GDP was in the 3%+ range.It ended up being off by a few thousands percent. But what’s truly scary is that even Wall Street’s most amusing permabull can no longer see a silver lining in the current quarter.

Advance Q1 real GDP rose just +0.2% at an annualized rate compared to a +2.2% gain in the prior quarter, below the consensus +1.0% estimate. Inflation-adjusted consumer spending increased 1.9% compared to a 4.4% gain in the prior quarter. Final sales to private domestic purchasers, the best proxy for measuring underlying private demand, were up only 1.1% in the quarter, similar to the weather-impacted 1.0% gain in Q1 2014.

Additionally, there was a much larger inventory build ($110 billion) in Q1 than what we had expected—it added 74 basis points to Q1 real GDP. This was the largest inventory accumulation since the $116.2 billion build in Q3 2010. Given the fact the various regional purchasing manager surveys have been weak in April, it appears that producers will allow inventory positions to run off. This tells us that current-quarter growth is likely to run around 2.5%, not the 4% snapback we had previously been anticipating.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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