Was the GDP Report Really Good?

08/01/2013 5:16 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The recent GDP number beat expectations, says MoneyShow's Jim Jubak, but in the current environment, it may not really be good news for the market.

For the week ahead, the tough thing is not going to be figuring out what the economic growth rate or the jobs rate is.  I mean, it's going to be hard.  The real tough thing is going to go figuring out when good news is good news, and when bad news is good news, and when good news is bad news.  Confused?  Yeah, it is. 

Okay, so on July 31st we had the first read on second quarter US GDP, I'm using this as an example.  US GDP came in at about 1.7%.  That was better than the 1.1% growth rate annualized that economists were looking for, so great news.  Well, no, because you see the faster the economy grows the more the market worries about the Federal Reserve cutting back on its $85 billion a month in treasury and mortgage backed security purchases.  So good news is actually bad news in that way because it means that the fed is going to be withdrawing the support from the markets earlier. 

But, if you went down a couple levels into the GDP numbers, they weren't as strong as they looked, so the consumer spending in fact looked pretty weak.  A lot of the unexpected upside came from inventories.  If you took those out to sort of smooth the curve and looked at something called real sales, they were really the weakest they had been for a quarter since 2011, so if you looked at those this was sort of like bad news.  The end result was the market really didn't do anything, and I think that's the problem right now which is that it's very hard to get something that is unequivocally good news or bad news because the economy is sort of slogging along, doing what it's doing, not growing very fast, not growing very slowly, that that strength, that relative strength is a good thing because we certainly don't want it to slow any more than that, but it's kind of disappointing if you think that we should be growing at 3% in a recovery because we're not quite there. 

On the other hand, the market is kind of, well, addicted to these big cash infusions from the Federal Reserve and globally from the Bank of Japan and the European Central Bank, so slow growth is okay because these banks will keep supporting the markets, but when will they stop?  How slow is too slow?  How slow is slow enough?  How slow is too fast?  All these things make this very, very hard to read, and I think its the reason why probably for August the market isn't going anywhere, but watch all of the data to see when good news is good news, bad news is good news, and good news is bad news. 

This is Jim Jubak for the MoneyShow.com video network.

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