US Economic Growth For The First Three Months Of 2019 Smashes Expectations, Gold & Silver Rise

The govt just released its first estimate of Q1 GDP, and it smashed all expectations coming in a 3.2%, but this will be a problem for Trump & the Fed…

Gold & silver were, per cartel policy, “sold” the moment Q1 GDP “hit the tape”:

The metals then began recovering immediately.

However, the recovery could be considered the “knee-jerk” reaction, and knee-jerk reactions are often not the ultimate direction of the move, and they can take some time to play out.

Yet gold & silver have been pummeled for months, and I’ve been saying all along that I think the downside is limited.

Gold & silver have yet to hit my downside targets of $1250 and $14.50, but the bottom may indeed be in.

What does a 3.2% GDP for the first three months of 2019 mean?

Well, it means President Trump can keep claiming the he alone made the US economy the best, ever.

However, this puts both President Trump and the Fed in a pickle.

Why?

If the economy is really booming, why is President Trump and his administration calling for flat-out money printing and interest rate cuts, because that’s what you do when the economy is in absolutely terrible shape?

If the economy is this strong, why is the Fed “patient” in their rate hikes and balance sheet reductions?

Here’s more coverage on the GDP print from Zero Hedge:

With the Atlanta Fed forecasting Q1 GDP of as little as 0.5% about 6 weeks ago, traders were shocked when moments ago the BEA reported a GDP print that at first glance many though was a misprint: at 3.2%, Q1 GDP came in 50% higher than the 2.3% expected, and was the highest Q1 GDP (which is not only the weakest quarter of the year, but also a quarter notorious for its residual seasonality) since 2015.

That was the great news: the not so great news – the number was driven entirely by “one-time items” such as a surge in inventories and a far smaller trade deficit, pushing net trade sharply higher, neither of which is sustainable; meanwhile both consumption and fixed investment dipped from Q4, with PCE and CapEx adding just 1.1%, or about a third, of the bottom line GDP number.

Specifically, the breakdown of contribution to the bottom line GDP was as follows:

  • Personal Consumption: 0.82%
  • Fixed Investment: 0.27%
  • Change in inventories: 0.65%
  • Net Trade: 1.03%
  • Government consumption: 0.41%

And visually:

Some more details from the report: the increase in real GDP reflected increases in consumer spending, inventory investment, exports, government spending, and business investment that were partly offset by a decrease in housing investment. Imports, which are a subtraction in the calculation of GDP, decreased in the first quarter.

The increase in consumer spending reflected an increase in services (led by health care) that was partly offset by a decrease in goods, specifically motor vehicles and parts. The increase in inventory investment reflected an increase in manufacturing inventories, notably non-durable goods. The increase in exports reflected increases in exports of both goods and services. Additionally, the report noted that the increase in government spending reflected an upturn in state and local government spending, notably investment in structures.

Meanwhile, the Fed is trapped because while on one hand the economy is growing at a torrid pace, at the same time the BEA reported that Core PCE rose at just 1.3%, below the 1.4% expected, and sharply lower from 1.8% last quarter. In total, prices of goods and services increased 0.8% in Q1, after rising 1.7% in the fourth quarter of 2018. Food prices increased 3.0 percent, while energy prices decreased 16.7% in the first quarter.

While it remains unclear if the Fed will resume hiking rates, according to Natalliance Securities, the GDP data squashes the idea of any Rate Cuts. Specifically, the analysts notes that Q1 growth at over 3% shows the economy is growing at a solid pace and makes clear the Federal Reserve won’t have any reason to cut rates this year as some traders are pricing in, according to Andrew Brenner, the head of international fixed income at Natalliance Securities in New York.

“You are seeing a strong enough economy with low inflation and the talk of precautionary rate cuts are way to early and not relevant,” Brenner told Bloomberg, adding that the weaker-than-expected PCE won’t be sufficient to trigger the Fed to reduce rates given growth is over 3 percent and unemployment at below 4 percent. “That is not a formula for the Fed to ease.”

In other words, Powell will have to explain how he is balancing the blistering economic growth on one hand, and the continued slide in “official” inflation.