Deceptive GDP Numbers Reveal Best Growth Likely In Rear View Mirror

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Last Updated on: 30th April 2019, 03:26 pm

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This past Friday saw the U.S. Department of Commerce release its first estimate for the GDP growth for the first quarter of 2019. The numbers surprised analysts by coming in higher than anticipated at 3.2 percent. Yet if this was really such good news, then why did gold prices surge on the release at the same time as the dollar weakened? These are the reactions you might have expected had the data instead disappointed.

Some economists argued that it means lower inflation is in the cards. It gives the Federal Reserve the necessary excuse to keep on executing the so-called Powell Pause. Others point to the devil in the details of the data release. Some of the Commerce Department's report was less optimistic, revealing instability in the growth figures. Economist Peter Schiff argues that this is no time to abandon your IRA-approved gold, as he believes it will prove to be the fleeting strongest growth for 2019. It is a reason why gold still makes sense in an IRA. Now is a good time to consider Gold IRA rules and regulations.

The Best GDP Growth Numbers Look Like Things of the Past

If you dissect the report, you start to see the shaky full story behind the GDP growth. GDP growth for the first quarter was helped in no small part by a rise in inventories. This does not represent a positive trend. It signifies that consumers have ceased buying, which leads to a build up in inventories. The reality is that domestic purchaser final sales only marginally increased by a mere 1.4 percent. This number is in fact the tiniest increase in over three years.

Growth also got help from the trade figures in the report. The trade deficits dropped for first quarter. In the first half of 2018, such deficits had been high. According to Schiff, this stemmed from many firms choosing to front load their shipments in the second half of the year so that they could sidestep the new trading tariffs. According to Chief U.S. Economist Paul Ashworth of Capital Economics:

“Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year end.”

Peter Schiff argues that this only puts off the final day of reckoning, buying the economy an extra quarter. He warned listeners:

“I think this time it's going to be the second quarter that's going to be a big disaster. I mean, we may even get a negative number in Q2.”

Consider yourself warned. The economic picture is far from the rosy fairy tale propigated by many overly optimistic economists  who have been blinded by the everything bubble today.

Inflation Number Could Soon Be A Problem

Without the past positive contributions from accumulating inventories and declining trade deficits, the upcoming quarter two will likely struggle. Yet according to economists like Schiff, this is not the biggest problem. He argues that the inflation number will be the troubled spot to watch. The government's official inflation number for fourth quarter was a tame 1.7 percent. Keep in mind this number is the one they utilized in deflating the nominal GDP so that they could arrive with the released GDP figure. For the first quarter, the annualized inflation rate came in at only .9 percent.

It signifies that the nominal GDP figure was less deflated substantially for Q1 than for Q4 of 2018. It resulted in a larger reported GDP number. If the deflator had been comparable for Q1 as in Q4, then the GDP number released would have amounted to only 2.4 percent. This would have more or less matched economists' expected consensus too.

The real question is: why was inflation reported so unusually low? Oil prices rose more than 33 percent. The impact on the oil prices has yet to be fully realized, according to Schiff's interview with RT in the past week. Peter made the convincing case that the consumer price at the pumps was lagging behind the decline in oil prices. It meant that consumers received the advantages of free falling oil prices from the fourth quarter in the first quarter of the year. It would signify that they will begin to feel the pinch of elevating prices in the second quarter.

New Home Sales Figures Not Truly Encouraging Either

Another figure released this past week was the new home sales data. It similarly rose significantly but also unexpectedly. Many economists have argued that this was encouraging economic news.

Yet digging into the data again tells a different tale. Builders had significantly cut prices to move existing inventory. It means the new home sales were not so spectacular really. When builders have to slash prices to sell off inventory, this is a worrying sign for home construction and sales in the future.

Why Were Investors Buying Gold If the Economic News Was So Amazing?

This still leaves the question unanswered of why such supposedly good economic news triggered a spurt of gold buying. Schiff had a solid explanation for what could cause this on the back of so-called fantastic GDP growth and higher new home sales. Peter argued that:

“I think it's because the markets were looking at the delfator and saying, ‘Wait a minute. There's less inflation.' That means there's another reason, another excuse, for the Federal Reserve not to have to hike interest rates because inflation is below their two percent number. And I think it was that low inflation number, even though it's clearly a transitory number based on the way it's being calculated, but I think the market jumped on that and they bought bonds, they sold the dollar, they bought gold.”

Schiff has a solid point. Smart money pours into gold when they anticipate future weakness or higher inflation in the economy. Its safe haven primary nature encourages this behavior, which drives prices higher as demand rises while supply is fixed.

Gold Is Your Best Line of Defense Against Future Weakening Economic Growth and Higher Inflation

The smart money investors never leave their investment and retirement portfolios' fates to the whims of the financial markets. They realize that gold has been effectively safeguarding assets for not hundreds, but literally thousands of years now. It is why they always keep a certain percentage of their account values in some form of gold bullion.

You should protect your own retirement portfolio from market corrections and economic pullbacks as well. An easy way to do this is through buying gold in monthly installments. You can even park your IRA-approved platinum, silver, gold, and palladium in top offshore storage locations for IRA gold now, thanks to relaxed rules from the IRS.

Do not wait until the economy is in pull back mode to make adjustments to your portfolio. Now is the time to seriously consider the Top Five gold coins for investors now while there is a relative calm before the financial storm. The everything bubble will burst sooner or later. There is nor reason for your portfolio to burst with it.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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