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GDP Declined in First Quarter

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·3 min read
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The first read for Q1 GDP is out this morning, and it surprised to the downside to a negative -1.4%. Expectations were for +1.0% growth, following Q4’s robust +6.9%. It’s the first negative quarter since Q2 2020, which was considered the “heart” of the pandemic — or at least the heart of the impact of the initial Covid shutdown.

Consumption came in at +2.7%, which is actually higher than the +2.5% we saw in Q4. Where we see the fall-off is not in consumer activity but in things like net trade (-3.2%) and inventories (-0.8%). Recall Q4 was heavy with inventory builds after supply chain issues marred the Great Reopening, or at least partitioned it out over time. We’re also at record trade deficits, as yesterday’s Advance Trade in Goods for March showed us.

Should the revisions to Q1 stay negative over the next two prints AND Q2 winds up negative as well, it will be the first U.S. recession since 2020. The big economic bounce-back is currently expected for Q3 of this year, so even with a technical “recession” — which is certainly not guaranteed on a first draft of one quarter — it’s expected to be temporary. Further, the “actual” recession most economists warn about doesn’t happen until a few quarters from now.

Initial Jobless Claims were exactly in-line with the 180K expected, and down from the slightly upwardly revised 185K the previous week. These are still half-century lows for jobless claims overall, though we’re up from the cycle low 166K. Continuing Claims dipped again, this time to 1.408 million — the lowest level we’ve seen since the Three Dog Night was making the Billboard charts.

Caterpillar (CAT) put up a very strong Q1 earnings report before the bell this morning, with earnings of $2.88 per share outpacing the $2.66 in the Zacks consensus, while revenues of $13.59 billion topped the top-line estimate by +0.63%. Shares are selling off a little, however, after an initial jump higher. Shares are roughly flat year-to-date.

Eli Lilly & Co. (LLY) performed even better in its Q1, with earnings of $2.62 per share beating estimates by 30 cents per share, and well ahead of the $1.87 per share from a year ago. Sales in the quarter of $7.81 billion grew +3.87% over expectations and above the $6.81 billion in the year-ago quarter. Shares are up +4% in pre-market trading, adding to the nearly +5% gains year to date.

McDonald’s (MCD) also came in higher on both top and bottom lines for its Q1 report: earnings of $2.28 per share beat the Zacks consensus by a solid dime, while $5.67 billion in quarterly revenues beat expectations by +2%. Shares are up slightly on the news, but still -7% year to date.

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