How’s The Economy Doing?

David Reavill
4 min readJan 26, 2023
The Bureau of Economic Analysis calculates GDP.

Where is the economy headed? It’s a question I get often, and the answer is one of the most important for investors. Generally, you would rather not invest in high-growth stocks during a recession or in bonds during inflation.

What’s so interesting about the current economy is that we’ve dusted off an old term that economists hadn’t used in 40 years: “Stagflation.” Stagflation combines slow economic growth, borderline recession, and high inflation. You are right. Stagflation is a difficult time for all investors, as we’ve seen. For the growth-oriented investors, ones who like big-tech companies, for instance. Slow growth can be a challenging time. Have you noticed the number of recently laid-off technology workers? It’s a sign of declining earnings directly ahead.

And for bond investors, inflation quickly eats away at our returns. Yields need to be re-calculated in real terms, that is, after accounting for inflation.

Today, the Bureau of Economic Analysis, the government’s chief economic bureau, will provide its initial estimate of GDP for the fourth Quarter of 2022. This estimate is the least reliable of the three estimates the BEA will report over the next three months. Later the BEA will use survey data, corporate earnings, other reports, as well as other methods of data collection to provide a complete picture of what was happening that last Quarter of the year.

Today’s Preliminary Report on the GDP will be one of the most closely watched reports we’ve seen in a long time. There is so much that rides on this report. In Washington, President Biden is looking for good news to take people’s attention away from the growing scandal. Over at the Eccles Building, The entire staff of the Federal Reserve is holding their breath to see if the economy will sustain their next interest rate move, scheduled for next Wednesday.

Altogether, Washington represents the Pollyanna view of the economy, with the Fed and the Administration hoping to see a firm GDP number.

The Atlanta Federal Reserve Branch publishes a rolling estimate of our current GDP, and their latest report indicates that GDP grew at 3 1/2% in Q4 2022. A bullish outlook and even better than the Quarter before.

But the rest of the country is not as upbeat as Washington. In Manhattan, the denizens of Wall Street have a much more dour view of our economic performance. They are as far removed from Washington’s perspective as I’ve seen. Wall Street believes the economy will be lucky to grow at half the rate that Washington sees.

The Fed’s latest Blue Chip Wall Street Analysts survey shows that these analysts predict economic growth of between 1/4%, almost recession, and a top estimate of 2.9% growth. In other words, there is a massive gap between what Wall Street sees and what Washington sees.

The difference in GDP growth is due to Wall Street’s focus on Corporate earnings and guidance reports. While Washington is relying on more traditional data, much of which has yet to come in.

Remember, corporate results move in instantly. Those layoffs, poor earnings, guidance reports, and casual conversations hit Wall Street’s ears. Analystslysts are talking to major corporate execs, financial officers, and managers; the news must not be good. It may take Washington several weeks for their survey results to appear. But in the meantime, Wall Street is already making investment decisions based on information they now have in-house.

Now you and I can look for some things as we go through today’s report.

Last month the BEA reported on Q3 of 2022. We will likely see some significant changes from Q3 to Q4. Two of the industries that were powering the economy in Q3 were Real Estate and Retail. Real Estate was the fourth fasted growing Group for the Quarter, while Retail was the fifth fastest-growing Group. There are 22 Industrial Groups that GDP measures, so 4 and 5 mean that Retail and Real Estate were among the top quintile of all industries, based on their growth.

If you’ve read the headlines, you know it’s unlikely that Real Estate is near the torrid growth levels it reached back in Q3. The same is likely valid for Retail, where preliminary estimates are that Holiday Sales were poor.

So, as today’s report flashes across your computer screen, pay particular attention to Real Estate and Retail Sales.

Finally, there’s an old political trick that this Administration is not using. And that was a real surprise. Whenever Washington feels the country is headed toward recession, they kick the government hiring office into high gear. Add to those 2 million “.gov” workers. This make’s the employment numbers look better, as well as spreads around those government paychecks to help stimulate the economy.

In Q3, the Biden Administration did the opposite. They reduced government spending. The reduction may be relative to the astronomical spending levels the Quarter before. But no matter the reason, I’m looking for a significant ramp-up in Government spending in Q4.

So at 8:30 am this morning, the Bureau of Economic Analysis will provide its first estimate for GDP in the fourth Quarter of 2022.

Lots are riding on this report. The Federal Reserve is looking for a good reading that will support its raising interest rates. The Biden Administration is also looking for a favorable GDP report that will provide…well, support.

While Wall Street isn’t buying any of it, their estimates remain about half of the GDP Models in Washington.

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David Reavill

David Reavill writer + finance +iconoclast + hiker + Pennsylvania #valueside daily podcast + medium + meditate