Research Summary

The report discusses the surprising strength of the economy as revealed by the GDP report from BEA. The real GDP increased at an annualized rate of 2.0 percent, a significant upward revision from the second estimate of 1.3 percent. This increase primarily reflects upward revisions to exports and consumer spending. However, the report also highlights concerns about inflation, with the personal consumption expenditures (PCE) price index increasing by 4.1 percent, twice the Federal Reserve’s target. The report also notes a decrease in corporate profits.

Actionable Insights

  • GDP Strength: The upward revision of GDP growth to 2.0 percent indicates a stronger economy than initially estimated. This is largely driven by consumer spending and exports, suggesting both robust domestic and international demand.
  • Inflation Concerns: The PCE price index, a key measure of inflation, increased by 4.1 percent, twice the Federal Reserve’s target. This suggests that a July hike by the Fed is quite likely, and another may be on deck after that.
  • Income Growth: The increase in personal income and disposable personal income suggests a strong consumer base, which is a positive sign for future economic growth.
  • Corporate Profits: The decrease in corporate profits could be a cause for concern. If this trend continues, it could impact future investment and employment growth.
  • Higher for Longer: All of this data makes it clear that the Fed has more work to do. The report maintains that the Fed is likely to hike in July and likely at least once more after that.

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