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IMF Cuts Its US GDP Forecast... Right Before Growth Accelerates - imf

The International Monetary Fund says there are "larger than usual" risks to the U.S. economy. As such, the agency cut its GDP forecast from April's year-end 2017 estimate of 2.3% to 2.1%.

Apparent doubts about President Donald Trump's ability to pass his proposed tax cut plans and increased infrastructure spending, what the IMF called "significant policy uncertainties," filtered into the decision to take down it's forecast.

We disagree with the IMF and think the U.S. economy is accelerating. So with U.S. stock indices were down between -0.5% and -1.6% yesterday, you can buy the dip today. Here's why.

Hedgeye Versus The IMF

Set aside for a second that the IMF's track record of predicting actual economic growth leaves a lot to be desired. Now consider some recently reported U.S. economic data:

  • Durable Goods Ex-Defense & Aircraft (a proxy for household spending) accelerated from +3.7% year-over-year in April to +5.3% in May. That's a 33-month high. 
  • Capital Goods (Capex) accelerated from +3.1% year-over-year growth in April to +5.0% in May. That's a 33-month high too. 
  • Corporate Profits ramped to +9.3% year-over-year. Recall this trend of profits accelerating comes after five consecutive quarters of negative year-over-year profit growth. 

The U.S. economy is heating up. In the first quarter of 2015, year-over-year GDP peaked at 3.3% fell to 1.3% by the second quarter of 2016 and has since rebounded to 2% in the first quarter of 2017. We see growth continuing its up-trend into early 2018.

The American people feel pretty good about the U.S. economy too.

Consumer Confidence 

Here's some analysis from today's Early Look written by Hedgeye CEO Keith McCullough:

  1. US Consumer Confidence (Conference Board Report) accelerated to +118.9 in May vs. 117.6 in April
  2. While that reading is inside of the +124.9 reading in March, it’s still higher than any reading under Obama’s Administration
  3. More importantly, Consumer Confidence was all the way down at 97.4 in June of last year

"I get it. That’s 'soft' data, and 33 month highs in both US Durable Goods and Capex growth is too hard for the bears to digest," McCullough writes. "That said, that’s what makes a market. Being confident matters a lot less than being ignorant in contextualizing economic data."

See the Consumer Confidence Chart of the Day below...

IMF Cuts Its US GDP Forecast... Right Before Growth Accelerates - 06.28.17 EL Chart

Bottom Line

The U.S. economy is accelerating. So buy the dip in U.S. stocks.