1Q GDP forecast from Atlanta Fed fell off a cliff last week, dropping to 0.6% from 1.2%.
The market must be looking past the weak 1Q and expecting a bounce back in 2Q growth. If this bounce does not materialize, the market looks increasing vulnerable to a pull-back. Worse yet, the weakness is centered around consumer spending. Real consumer spending growth in 1Q was only 0.6%, down from 1.7% in 4Q, according to the Atlanta Fed. Consumer confidence numbers are heading up, but consumer spending is heading down.
This relationship cannot last forever. Let's hope the weakness is temporary. A good way to describe the American consumer is frugally optimistic. I continue to advocate a more conservative investment stance given the perplexingly optimistic market behavior.
Michael Grove, CFA