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Registered Investment Adviser Caleb Lawrence

Despite a number of significant data misses involving real estate and the economy as a whole, the first shot in what could be a trade war, 2 substantial corporate failures in Britain that have and will cost the banks dearly, so far, it’s a billion Dollars and counting just in the US. The major averages gained nicely for the week with the Standard and Poors 500 up 52 points or 1.8% since Monday while the NASDAQ has gained 140 points or 1.9%. Because none of this stuff matters anymore, as it’s up and to the right!

Preliminary GDP or Gross Domestic Product missed expectations in the 4th quarter gaining 2.6%. For the year GDP advanced a respectable 2.5% its best showing since 2015. As expected both trade and inventories subtracted from the topline figure and based on the days data I expect the 2.6% number to come down slightly. Disposable income advanced 1.1% in the 4th quarter, but the savings rate hit a 12-year low of 2.6%. The inflation measuring Personal Consumption Expenditures deflator or PCE jumped to 2.8% driven by large gains in energy prices that should prove transitory.

Wholesale and retail inventories gained .2% in December, led by Durable Goods. Despite significant destruction of auto inventories by the hurricanes earlier, and considerable replacement demand in the post hurricane period auto inventories failed to contribute, a reflection of the exceedingly bloated auto inventory condition prior to the hurricanes. This will likely go down as one of the very few examples of “destruction” providing a net positive economic benefit.

The trade deficit advanced again in December with a .2% gain to 71.58 billion. Exports increased 2.7% to 137.6 billion while imports advanced 2.5% to 209.2 billion, this report will subtract from GDP. With the Dollar losing 9.2% of its value in 2017 exports benefit as they cost less while also creating some inflation as imported goods prices increase. That said weakening a currency with the idea of exporting one’s economic malaise adds fuel to the trade war argument.

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