Yes, But…

Story Highlights:

• The Bureau of Economic Analysis released the first revision of Q1 GDP today.
• Despite a revision higher and still positive growth, folks remain overly dour.
• When worries don't match a brighter reality (even if that reality itself isn't too great) stocks tend to do well.

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Government numbers are like that guy who crashed your couch in college. He was a fixture in your apartment, was well-meaning enough, and enjoyed sharing your beer while discussing the many flaws of the latest Star Wars release. But darn it, entertaining as they were, you just couldn't rely on any of his stories being true—they were subject to many revisions.

GDP, one of the most followed government numbers, was re-released later today, the sequel to April's first quarter pronouncement. It was revised a bit higher to +0.9%. Is it gangbusters? No, but it doesn't need to be. Were that the case, we'd set our accounts on automatic pilot to buy in when growth hits some predetermined level, and sell out when it drops below. But history shows that doesn't work too well. What matters is current expectations and how they're tracking reality.

Folks seem overly dour right now. There's no explanation for it. But after two years of crying wolf (with no end in sight), recession enthusiasts have been granted only a few lackluster but still-positive quarters. And yes, we've heard the argument the National Bureau of Economic Research (NBER) doesn't only look at GDP when making its determination of recession. But GDP is the most important component—and if it's still growing, even tepidly, it's unlikely a recession is currently underway.

Given all this and even an upward revision in GDP growth, die-hard pessimists will reach deep into their magical bag of tricks and haul out the famed "Yes, but..."

"Yes, but growth could be stronger!" True, but even if it's 7.8% one quarter, growth could always be stronger.

"Yes, but all that growth is only from high gas prices, which hurt consumers!" Maybe, maybe not. We'd argue high gas prices are symptomatic of a growing global economy. But if folks have 100 bucks to spend, the overall economy doesn't much care how it's divvied up. The overall economy doesn't care if you spend the bulk of it on gas, food, or monkey sock puppets, and it doesn't care if you cut back on other areas. One hundred spent overall is one hundred spent overall.

"Yes, but airline fees are up while services are being cut! That has to mean something menacing!" Maybe the airlines should figure out how to run their businesses better—but frankly, one poorly run industry says nothing of overall economic health.

The point is expectations are exceedingly dour. See here:

The Fading of the Mirage Economy
By Steven Pearlstein, Washington Post
https://www.washingtonpost.com/wp-dyn/content/article/2008/05/27/AR2008052703077.html

And when worries don't match a relatively brighter reality (even if that reality itself isn't too great) stocks tend to do well. Consequently, though we're often tempted to suggest naptime, we're actually thankful the naysayers put a damper on everyone's fun—it's when these folks try to tell us everything's grand we'll start to worry.