We’ll leave it to others to review & opine in the internal minutiae of this morning’s GDP report. We’d highlight a few tangible takeaways:
- GDP | #GrowthSlowing, 3 Qtrs & Counting …. On a year-over-year basis, growth slowed -30bps sequentially in 4Q15 to 1.80% YoY, marking a 3rd consecutive quarter of deceleration and the slowest rate of growth in 7-quarters. Sequential deceleration was largely ubiquitous across all expenditure types and sub-aggregates (see summary table below). It’s not incidental that employment growth, income growth & consumption growth all peaked in 4Q14/1Q15 and have since decelerated alongside headline growth. We are late cycle in the current expansion and negative 2nd derivative changes across labor, consumption, investment, and credit growth shouldn’t be particularly surprisingly – it’s how the temporal procession of the cycle manifests and 2nd derivative trends naturally precede first derivative changes.
- Comps | It Gets Tougher: Comps only get tougher in 1Q16 and given the base effects in combination with the prevailing trajectory of current domestic and global macro data we expect the trend toward deceleration to extend another quarter or two, at least.
- Slow and UnSexy: Slowing growth puts us in Quad #3 (slowing growth and Inflation) or Quad #4 (stagflation) in our GIP model over the coming quarters. $USD’s, Bonds and Utilities work under either scenario. It's not sexy and it's as boring as its been profitable over the last ~6-months but we continue to like those slow growth exposures. See this mornings Early Look for a further discussion.
- NIRP Action out of the BOJ this morning and the resultant downward shifting of the global yield curve serves to edify our bullish view on bonds. Divergent central bank policy and an active OUS currency war race-to-the-bottom is supportive of $USD allocations and a perpetuation of the Strong Dollar deflationary trends that have characterized much of the past year. Resurgent central bank interventionism is not a function of improving macro fundamentals.
Christian B. Drake