GDP reports aren’t usually market-moving events, but last Thursday’s print was an exception. The price deflator for personal consumption expenditures – a fancy term for inflation – was higher than expected in the first quarter. We already knew this based on the monthly reports for January and February, but last week’s data confirmed it. At the same time, headline real GDP growth came in at 1.6% annualized, nearly a percent lower than consensus. Predictably, the term “stagflation” began to swirl around the investment community, including the financial press. But one look at this week’s chart should tell you that this is the wrong word to describe the U.S. economy in Q1. Indeed, it’s always been the wrong word to describe the U.S. economy, other than a brief experiment with wage and price controls in the 1970s. Underneath the “hood” of GDP growth, core components like fixed investment and consumption were solid in the first three months of the year. Final sales to private domestic purchasers, which strips out trade, government spending, and inventory changes, grew at a 3% rate, very similar to the average of the prior four quarters. So yes, we got some “-flation” in Q1, but we’re still waiting for the “Stag-“ to show up.

The Macro Week In Review

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