If we needed confirmation that economic growth is slowing – today we got it. The US economy shrank at the start of the year, restrained by weaker consumer spending and an even bigger impact from trade. Gross domestic product (GDP) decreased at a 0.2% annualized pace in the first quarter. And there were also warning signs from the labor market…
Real GDP
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Worry About Growth – Not Inflation
Some people are concerned about mounting inflationary risks. For example, it was only last week the Fed raised its inflation projections – where core inflation is expected to grow at a 2.8% annual pace, up 0.3 percentage points from the prior reading. And whilst inflation may remain sticky in areas like services and shelter (which I will talk to more shortly) – I think we should be more concerned with growth.
Growth Defies Fear
In my experience – growth ultimately defies fear. And whilst stocks will always climb the wall of worry – over time – growth prevails. The challenge for investors is the pathway is rarely in a straight line. Put another way, markets are constantly in a tug-of-war between opposing forces. Consider what we see today… we have a surprisingly robust US economy, defying expectations of a slowdown. Tailwinds include Fed easing, disinflation and a consumer which continues to spend. The counterforce to the further growth are escalating geopolitical tensions in the Middle East – which threaten to disrupt the global economic order