GDP Report

Exactly how grim was last week's GDP report?

Financial Commentary
May 2, 2022
Ted HansonBy Ted Hanson
Portfolio Manager

It is a challenging start to 2022, with last week’s GDP release shedding light on this. Gross domestic product (GDP) measures the goods and services produced within a country. It is an important indicator used to measure the health of an economy.

In its most recent GDP report, the commerce department announced the U.S. economy shrank 1.4% at the beginning of 2022, the worst quarter in two years. This was lower than the 1.0% growth economists expected and significantly lower than the 6.9% annualized rate logged in the fourth quarter of 2021.

What caused the U.S. economy to shrink?

In addition to geopolitical events (e.g. the Ukraine war, China COVID lockdown), a primary cause in the decrease in GDP can be traced to an expansion of net imports. The U.S. saw a surge in imports during the first quarter while exports fell, reflecting many of the supply chain issues plaguing countries over the past few years.

Chart

Consumer spending, usually the main driver of GDP, actually rose in the first quarter. The 2.7% annualized growth was slightly higher than the previous quarter, an indication of the higher prices consumers are paying. Businesses also spent more this past quarter as business spending rose 9.2%. However, the increase in consumer and business spending wasn't enough to keep the economy from contracting.

What does this mean going forward?

With persistent inflation and slower economic growth, the terms recession and stagflation (defined as slowing growth and raising inflation) are capturing headlines. One quarter of economic contraction does not make either of these terms a reality, but it does heighten the risks. 

The Federal Reserve is set to meet this week and is widely expected to continue to raise interest rates. The recent reading of GDP does not change The Fed's expected path forward, as it remains committed to combating inflation. This week will provide a glimpse into what lies ahead.

At Security National Wealth Management, accounts under our charge will remain fully invested, with a focus on quality, diversification, and valuations. Throughout a market cycle this strategy has proven to help investors reach their long-term goals. Talk to us about your goals and what we can do to help achieve them. Your success matters to us.

About the Author

Ted Hanson

Ted Hanson is a Portfolio Manager within the Wealth Management Division at Security National Bank. He serves customers by managing client portfolios, analyzing securities and performing daily trading activities. Ted is a graduate of Morningside College with a degree in finance and accounting. He started at SNB in 2017.

Related Articles

Spring Cleaning:  Time to Cultivate Your Financial Plan April 15, 2024

As the old adage goes, April showers bring May flowers. Depending on where you are from or walk of life, this proverb can take on many meanings. The way I interpret the classic saying is that April represents a time for preparation. A time to do some spring cleaning and tackle projects neglected during the winter months. For farmers, it means a return to long days in the fields. For accountants, it signifies the conclusion of an arduous three months of tax preparations. At Security National Wealth Management we feel now is a great opportunity to assess your financial plan and ensure you are on the right path to achieving retirement goals.
Look What's on the Verge of a Major 40,000 Milestone April 1, 2024

In early December 2020, my colleague, Michael List, published an article marking the Dow Jones Industrial Average hitting the 30,000 milestone. In that article, Michael describes four different methods that each provide us with an educated guess as to when the Dow would cross the 40,000 milestone, with guesses ranging from two to six years. Michael said that the 40,000 milestone probably would be here faster than we expect but that it ultimately would leave us with more questions, e.g., when would the Dow reach 50,000? And now, about 40 months later, or 3.33 years, the Dow is approaching 40,000, causing us to guess when it ‘turns’ 50,000. To continue our analysis, let’s use the same methods utilized by Michael to predict the arrival of the Dow at 50,000.
Unveiling the Fed: Journey from 'The Great Oz' to Transparency March 25, 2024

One of the evolutions in my investment career was the increasing transparency of the Federal Reserve over time. Decades ago, the Fed was seen as ‘The Great Oz’, its deliberations hidden behind the curtains and then revealed to the public through its actions. Deciphering the Fed’s inner workings was a cottage industry on Wall Street. Clarity in public pronouncements was not a priority for the Fed. The environment is much different today.