Oct. 28, 2021

GDP: The Ultimate CheckSum

This morning we'll receive our first look at the Third Quarter's Gross Domestic Product. The ultimate MACRO Number, the sum total of the economy's goods and services.

It's also the final checksum, making sure that what we've seen so far in the economy really adds up. Now a checksum is a block of data, used to make sure that your big database does not have any errors.

So, here's how Wall Street Analysts use the GDP CheckSum. So far corporate earnings have come in right on the mark. Those two big companies, Alphabet Google, and Microsoft actually exceeded what Analysts had expected. And most of the other companies which have reported so far, have also hit expectations. If I recall so far we're seeing about 3/4ers or better of all companies hitting their guidance numbers.

Now we've only seen about half of all companies report so far, and that could change. And we still have two of the most important companies reporting this afternoon: Apple and Amazon, so we haven't seen their results. But overall what we've seen so far, says the economy is sailing along just fine.

What we'd like to see now is a little confirmation, something that tells us that the economy really is just fine.

Enter the GDP CheckSum.

With what we've seen so far, I would expect that GDP should also be sailing along, with somewhere near the high estimates of a 4% growth level or so.

Let's see if that's the case.

GDP has just been announced.

And the envelop, please...

Wow. Just a 2% growth rate for Q3 GDP.

About half of Wall Street Analysts were well above this level in their estimates.

I was afraid of this. It's an indication that this economy is not just doing fine. That it's likely that some of the companies who have yet to report their third-quarter earnings are likely to disappoint. This isn't too surprising as I've often thought that companies who have done poorly, schedule their reports for later in the cycle.

But bottom line, this means that our GDP CheckSum does not add up. The economy is much weaker than we thought. Remember this is coming off two quarters of better than 6% growth. So this really is a big drop.

Making this even more important, is that this report has so much riding on it. The President wants to substantially raise taxes to pay for his social spending. That's now in question, as higher taxes could easily push this weak economy into recession.

The Fed wants to begin the taper, cutting back on some of its monetary stimuli. That too, is now in question, with an economy much weaker than they thought.

Overall this is a big surprise. And indicates that this is an economy where currently things just don't add up.