With a "0" in front of GDP and S&P earnings growth -8.5% y/y, should the Federal Reserve raise rates in June?
There's no debating the earnings recession anymore but, with Macro consensus predicting 2Q16 GDP growth of +2.3% and the Atlanta Fed’s GDPNowcast at 2.9%, so it's worth reviewing our #GrowthSlowing call.
Today's 1Q16 GDP estimate was revised up to 0.8% versus the first estimate of 0.5%.
That's misleading.
In calculating economic growth, the government used the sub-1% GDP Deflator, which stands at 0.6%. Meanwhile, if the US Government used the Federal Reserve's prefered measure of inflation, core PCE which now reads 2.1%, US GDP would have been NEGATIVE in Q1.
Look at the difference between the two inflation measures in the table below:
In related news, this marks the 5th straight quarter where Hedgeye's Predictive Tracking Algorithm has been within 20-30bps of nailing GDP. That's more than we can say for the Fed and Old Wall Consensus which have an average quarterly intra-quarter tracking error of between 152 to 246 basis points.
