US Advance GDP Turns Negative

Q1 2022 US Advance GDP Data

Earlier today, an initial estimate of US GDP, representing economic growth in the USA, was released, and came in well below expectations. The data indicates that the US economy shrank over the first quarter of 2022 by 1.4%, when the analyst consensus was expecting to see growth over this period of approximately 1.1%. The undershoot looks more dramatic when compared to US GDP growth in the final quarter of 2021, which showed an increase of 6.9%.

Today‘s release also included other data, namely the Advance GDP Price Index, which indicates the annualized change in the price of all goods and services included within the GDP calculation. This showed a historically high rate of increase of 8.0%, slightly lower than the current annualized US CPI rate which is showing a rate of increase of 8.4%. However, the analyst consensus expected that the Advance GDP Price Index would show a rate of increase of only 7.2%. This suggests that next month’s CPI data may again exceed expectations, unlike the last data which met expectations.

Unemployment claims data was also released, producing no surprise as the number of new unemployment claims met expectations, at 180k.

How Did Markets React？

Although the data seems worrying for both economic growth and inflation, markets barely reacted during the first hour following the release. Of course, the US stock market, represented by the S&P 500 index, is already looking bearish, trading well below its 50 and 200-day moving averages. The index is currently well into correction territory, being more than 10% lower than its all-time high, but it has not yet reached the 20% decline which is typically seen as indicating bear market territory. The data may already effectively be priced in.

The datas effect on the US Dollar is less clear theoretically, and in any case, the Dollar has barely reacted to the data so far.

It should be noted that markets typically do not react strongly to Advance GDP data, preferring to wait for the finalized number which is released later.

What Does This Mean for Traders？

I do not see this data as immediately actionable for traders, but it indicates that we are a bit more likely to see more negative than expected US economic data next month, and this will probably be bad news for the US stock market, which is already looking shaky and flirting with its multi-month lows.

If finalized GDP shows the US economy really is firmly contracting, this will put the Federal Reserve in a difficult position, especially if inflation data overshoots expectations and continues to show an increase.