A Scary GDP Number

A quick look at the GDP data today is not encouraging.

GDP was up 2.4% in the quarter. That is not a great start.

Then you look closer and see that 1.1%  - almost half - was inventory rebuilding. Real demand-led GDP, then, was something more like 1.3% and who knows what percentage of that could be tied to government-related stimulus and so on.

Why does that matter? Generally we need to see demand growing above 2% before companies need to add workers.So, if this is the sort of economic growth we can expect, we are going to have persistent unemployment (and persistent low interest rates) for some time. That is not as bad as inflation, nor as bad as deflation, but it is a dark-grey "muddle through" that will not be very exciting and will make stock-picking a real challenge.

We will, of course, see what happens in the second half of the year, but I would be worried about seeing a round of earnings guidance declines either in August or with the third quarter earnings cycle. I just do not see how 1%-ish demand growth can support the guidance we have been hearing from companies this quarter, and exports are not strong enough to take up all that slack.

Uncertain times, my friends...