(By Fisher Investments)
US Q1 GDP growth was revised down to a 1.9% seasonally adjusted annual rate (SAAR)—expansionary, but nevertheless interpreted by some as a sign the US economy's losing steam (keeping in mind this is the 11th straight quarter of growth).
The revised GDP breakdown, however, suggests things are overall better
than the headline number might otherwise indicate. For one, business
investment and exports were revised up from the initial estimate.
Government spending was one of the larger downward revisions, but that
isn't necessarily a negative development, in our view—the private sector
is typically better at allocating resources. Higher imports also
detracted, but as we've written, rising imports tend to signal robust
demand, not a flagging economy. The contribution from inventories was
lower than first reported, but that doesn't necessarily carry negative
And consumer spending—the largest share of GDP—still grew a healthy
2.7% despite its small downward revision. Overall, Q1 GDP seems to be
more evidence of a healthy US private sector.
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Growth-rate volatility, whether in the headline or component readings,
is typical amid an ongoing expansion, and a small Q1 wobble, in our
view, needn't mean recession is around the corner.
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Econ 101, energy emphasis
Data aside, there was an interesting, seemingly relatively unnoticed bit of news
about the US natural gas industry Thursday. As has been well reported,
the US is positioned to become a net natural gas exporter in the near
term—provided, that is, government doesn't decide to stand in the way.
But in an election year, it's likely the government will be less
inclined to rock the boat than usual—which indeed seems to be the case
here. Lest anything untoward happen as a result of approving natural gas
export terminals and/or contracts—like price increases, related
industry job losses, etc.—the government seems likely to err on the side
of caution and curtail for the time being efforts to export natural
Trouble is, approving such contracts and allowing exports would likely
create far more winners than losers—internationally and domestically.
It's not hard to fathom international winners (in this case, Japan, who
is interested in and willing to pay for US natural gas). But there are
no doubt domestic winners, too—like producers who realize new markets
for their goods, which then implies a greater need for employees,
ancillary services like transportation, etc., creating more downstream
Not to mention allowing US producers to export excess supply likely
doesn't push prices massively higher, contrary to popular Beltway
belief. In a world where producers' markets are limited, if prices stay
too low, they're likely to ultimately curtail production to maintain (or
even increase) those prices. But if they're allowed to expand their
markets, demand likely remains robust and gets diversified to boot,
meaning they'll keep production flowing, potentially mitigating—if not
offsetting altogether—price changes.
But don't expect Washington, D.C. to sort the economics out anytime soon—politicians' track record isn't too great when it comes to Econ 101.
This article reflects personal viewpoints of the author and is not a description of advisory services by Fisher Investments or performance of its clients.
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