- The US economy has grown by only 1.1% annualized in the first quarter of 2023.
- Personal consumption remains resilient, pointing to further growth.
- Replenishing of inventories should add to future growth.
- The inflation component has exceeded estimates with 4%, adding to rate hike pressures.
A screeching halt for the US economy? That is what an annualized growth rate of 1.1% represents, but this time, there is much more than meets the eye. The world's largest economy expanded by less than 0.3% on a quarterly basis, but it has good excuses. And the US Dollar has even more reasons to rise.
First, the US shopper remains relentless. Personal consumption is up 3.7% annualized, showing that higher interest rates have yet to deter the ongoing spree. Disposable income is high, and people are enjoying it.
Secondly, inventories dragged GDP some 2.26% down. If inventories had stayed unchanged, annualized growth would have been over 3%. That is substantial. More importantly, when businesses deplete inventories in one quarter, they tend to replenish them in the next one.
Third, the inflation component is strong -- PCE rose by 4% annualized, which is stubbornly high. That not only signals more rate hikes and a stronger US Dollar, but also shows that companies feel comfortable raising rates.
And as a bonus, the separate weekly jobless claims figure showed a drop to 230K, good news for the US economy.
With lower unemployment, higher inflation and strong growth, there is only one path for the US Dollar -- up.
For Gold, higher rates mean weakness. For stocks, the news is more mixed. While higher rates are bad news, the underlying ongoing growth -- especially in consumption -- and the accompanying drop in jobless claims are good news.
The final word belong to the Federal Reserve (Fed). Nevertheless, these figure not only confirm the upcoming 25 bps rate hike, but also open a wider door for another increase in June.
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