Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. GDP: Is the Economic Sky Falling?

Economics / US Economy Jun 27, 2014 - 06:11 PM GMT

By: Investment_U


Tom Sandford writes: The U.S. economy just came out on top of one of the biggest financial upsets in decades, but you might not know it from the latest report on America’s gross domestic product (GDP).

According to the U.S. Commerce Department, GDP nosedived by 2.9% during the first quarter of 2014. It also set the record for the worst first-quarter performance in five years. Naturally, the news has some investors shaking in their boots.

Truth be told, it’s not that bad. Sure, the rate of droppage was more than double the 1.7% predicted by economists.

But the economic sky isn’t falling. According to economic analysts, the massive GDP plunge was essentially a speed bump brought on by the perfect storm of unlikely occurrences. A blip in the grand scheme of investments.

Job growth has held steadily at about 200,000 per month. Inventory and shipments are up. Consumer spending is still up 1%.

Though analysts had some choice words for the rate change, the report was read and then dismissed. Investors followed suit, and stocks actually rose.

"Despite the awful start to the year, the U.S. economy is nowhere close to recession," said BMO Capital Markets senior economist Sal Guatieri, in an interview with the BBC.

So why all the economic huffing and puffing? Here’s what you need to know about the GDP drop, and why analysts have already moved on.

The Ho-Hum of All Fears

The GDP drop is unique for a number of reasons that are not expected to reoccur in the near future.

For one, experts blamed an unusually long period of cold weather that sent a chill through a number of economic channels. There’s no exact way to tell how many prospective buyers skipped out on retailers, restaurants and car lots in lieu of a warm couch.

But the report comes close. Consumer spending underwhelmed analysts by increasing by just 1%, rather than the 3.1% they expected. That stung since more than two-thirds of U.S. economic growth comes from consumer spending.

Not surprisingly, analysts have blamed the frost for keeping profits down in retail and causing a slowdown in restocking, as well as domestic and foreign shipments. Exports dropped by 8.9%, which likely lobbed off 1.53% of GDP growth. It did not, however, limit economists’ optimism.

"The larger contraction in GDP in the first quarter is not a sign that the U.S. is suffering from a fundamental slowdown,” Capital Economics senior U.S. economist Paul Dales told CNN. “It was still largely due to the extreme weather.”

It may sound farfetched, but there is scientific proof. According to a study by the National Center for Atmospheric Research (NCAR), even the slightest inconveniences from inclement weather can take a toll.

NCAR researchers concluded that bad weather could have driven the GDP down by as much as 3.4%. When translated to banknotes, that would equal more than $485 billion in economic losses.

At the same time, cuts to food stamp programs and the expiration of unemployment benefits also cut deep. When coupled with a weaker-than-expected increase in healthcare spending, economists saw the writing on the wall.

In addition, growing store inventories amounting to $45.9 billion kept profits shelved. While it sits, 1.7% in GDP growth sits with it.

Nowhere to Go But Up

If economists’ nonchalant attitudes are any clue, the economy is expected to rebound in the near future for a few reasons. It turns out optimism might carry some value, especially in the minds of investors who look to leading analysts for guidance.

“If the optimists turn out to be right, the world's largest economy should show a return to growth in the second quarter,” says BBC New York analyst Michelle Fleury. “The U.S stock market's positive reaction shows investors seem willing to buy into that idea.”

While optimism alone is not solid ground for an investment decision, the proof behind it can be. For one, the cold weather has subsided, shipments are steady and inventory is poised to fly off shelves.

And the job market is holding steady, with around 1.1 million jobs added in the last five months. That’s consistent with an economy expecting to expand by 1% to 3% per year.

“This sets us up for a very solid Q2 payback, but how much remains uncertain," Deutche Bank chief U.S. economist Joseph LaVorgna told CNN.

Investors should not hesitate to trade stocks based on these GDP numbers, but if you’re looking to invest in a trade with a steadier track record, look to the services sector. Buoyed by increased business activity in June, the sector expanded at its fastest rate in 4 1/2 years.

"Companies are reporting strong demand for goods and services, linked to growing confidence among households and business customers,” says Chris Williamson, a chief economist at Markit - the company that developed the index. “And setting the scene for further robust economic growth as we move into the second half of the year."

Investors should look to invest in solid service industry leaders like Spar Group Inc. (Nasdaq: SGRP), RLJ Entertainment Inc. (Nasdaq: RLJE) and Command Security Corp. (NYSE: MOC), which were up by 17%, 3.3% and 7.5% by market close on June 26.


Copyright © 1999 - 2014 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in