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Financial Industry Insights from Advisors Asset Management
On April 25, 2016
AAM Viewpoints - Reading the Quarterly Tea Leaves
In 2015 I penned a short blog that outlined why we felt Q1 (1st quarter) 2015 would be weak and how this did not spell the end of the expansion. What we witnessed when GDP for that quarter was released was exactly what we had expected, moderate business expansion tempered by declines in export activity and tepid personal consumption. The call on Q1 GDP was not out of the ordinary, in our opinion, though consensus estimates were inexplicably optimistic considering the following historical performance is available to anyone who takes the time to find it.
As the holiday season wound down last year, it became clear that not only quarterly GDP but annual GDP growth was going to be tepid. Personal savings rate climbed to the second highest level since December 2012. Auto sales fell to their lowest point in six months. Combined with business inventories being flat or negative for three consecutive quarters, the United States ended with the weakest year-over-year GDP since 2014.
This weaker quarter provided fuel for widespread optimism heading into Q1. The consensus was penciling in 2.50% over Q4. Yes, you read that correctly, in the face of the preponderance of historic evidence, the February 1 chart below from the Atlanta Fed, clearly indicates this Q1 ebullience.
Now, we stand only a few days away from the Bureau of Economic Analysis’ first release for Q1 GDP and you can see clearly in the most recent chart from the Atlanta Fed that over the course of the quarter, the consensus has declined to 1.40% over Q4 2015. The enthusiasm for the quarter waned over time because overly optimistic assessments were simply disconnected from reality.
I mentioned last year that surface level analysis of U.S. economy can damage investing confidence through the culmination of inappropriate decisions. Again, I refer to Daniel Kahneman, Nobel Laureate and author of Thinking Fast and Slow,
People tend to assess the relative importance of issues by the ease with which they are retrieved from memory—and this is largely determined by the extent of coverage in the media.
CRN: 2016-0401-5246R
This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information athttps://www.aamlive.com/legal/commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.
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