U.S. Economy Posts Strong First Quarter

The U.S. economy posted a very strong 3.2% annualized gross domestic product (GDP) gain in the first quarter. The U.S. economy is now in its tenth year of expansion. At the same time, inflation slowed in the first quarter and remains below the Federal Reserve’s 2% target.

Much of the increase in GDP was driven by rising net exports (exports minus imports) and higher business inventory investment. These offset weaker consumer spending and business investment. Housing was also a drag on the economy during the period.

Other positive factors for the economy include low unemployment levels; incomes and wages that are rising; and consumer confidence that is strong.

Economic and Investment Highlights

Last Week

Oil prices rose to $65.70, nearly reaching a six-month high; but ended the week at $63.30.

Sales of existing homes in the U.S. fell in March. At the same time, sales of new homes rose. The home ownership rate fell to 64.2% in the first quarter from 64.8% in the fourth quarter of 2018, the first drop in more two years. The mixed housing report and negative report on home ownership are potential drags on the economy.

Projections are that the costs of Social Security will exceed its revenue in 2020.

The S&P500 and the Nasdaq both closed at record highs on Tuesday and again on Friday.

The Week Ahead

This link takes you to Econoday’s Economic Calendar and Economic Events and Analysis which shows the upcoming economic reporting events scheduled in the week and months ahead.


Note: The comments that follow are derived from the economic indicators referenced in the Resources section and other sources at the end of this report.

The Philadelphia Fed’s ADS index has been below the zero line but has been trending up. This is a slightly positive sign for the economy.

The Atlanta Fed’s most recent estimate (based on its GDPNow model) of first quarter 2019 GDP growth is 2.7%. This is also a positive sign for the economy.

The New York Fed Staff Nowcast stands at 1.3% for 2019:Q1 and 2.08% for 2019:Q2. Again, this is a positive trend.

The Chicago Fed’s CFNAI index also points to a pickup in economic growth.

All told, these short-term economic indicators are a positive analysis for the economy, at least on a short-term basis.

The AAII Investor Sentiment Index is signaling that investors are becoming more cautious about the markets. The percentage of investors saying that their short-term outlook for stocks is neutral is at a three-year high. Other parts of the index also signaled increasing caution.

The latest Gross output (GO) reading suggests slow economic growth as we enter 2019.

On a longer-term basis, the forecasters in the Philadelphia Fed’s Survey of Professional Forecasters (as of March 22, 2019) predict real GDP will grow at an annual rate of 1.5 percent this quarter and 2.4 percent next quarter. On an annual-average over annual-average basis, the forecasters predict real GDP to grow 2.4 percent in 2019, 2.0 percent in 2020, and 1.8 percent in 2021. The forecasters predict the unemployment rate will average 3.7 percent in 2019 and 2020, 4.0 percent in 2021, and 4.2 percent in 2022.

For a more in-depth review and analysis of the economy, please see our mini-book on economic analysis and forecasting entitled: Simple and Effective Economic Forecasting.

Stock Market Valuations

Our estimates of the market valuations for two stock market indices, the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500), can be found in the file below:


We believe the economy is in a stable but somewhat vulnerable state. Nonetheless, it has remained fairly strong. In fact, the extremely strong first quarter showing gives us more confidence that the economy, now in its tenth year of expansion, can continue to grow. Please see our complete Economic and Investment Review in the Winter 2019 quarterly issue of the Intrinsic Value Wealth Report Newsletter.

With the two record setting highs set in the market this week, the market is somewhat overvalued at this time. But that does not mean that a market correction is imminent. Markets can and do stay overvalued for long periods of time. As discussed above in the Economic and Investment Highlights section of this Commentary, we believe the economy is in a stable but vulnerable state. If the economy remains strong, the markets will likely remain strong. If the economy deteriorates, the markets may well correct. There are other events that could trigger a market correction, of course, but economic conditions are the most likely and foreseeable events that could make that happen.

We believe it is important to maintain a long-term view toward investing. This means that you should continue building your investment portfolio using the Cassandra Stock Selection Model to select individual securities that offer growth and value opportunities.

Chart for Review and Thought

S & P 500 – The S & P 500 has risen 23.56% since its low on December 24, 2018 (through April 19, 2019).


We have been researching the use of crowdsourcing for investment ideas. We will be sending a survey out in the next few weeks to get your input on the economy and the markets; and to get any investment ideas that you would like to share. We will compile this input and distribute the results to you and our other subscribers.

Dr. Wendee will be speaking at the Las Vegas Investment Club on June 24th.  He will be speaking on the topic of his popular Forbes article, Nine of the Best Ways to Build Wealth. Please contact Mike Lathigee at mike@mikelathigee.com if you would like to attend.

Dr. Wendee will be speaking at FreedomFest during its annual conference in Las Vegas, July 17 – 20, 2019.

Paul attended the Landmark Angels event at the Pelican Hill Resort (picture below) in Newport Beach, California this past week. Events sponsored by angel investing groups like Landmark Angels explore investment opportunities in startup and early stage companies.

Intrinsic Value Wealth Creation pyramid

We always conclude our commentary with a discussion of the Intrinsic Value Wealth Creation Pyramid. The Intrinsic Value Wealth Creation Pyramid is designed to show some of the major categories for building wealth. It is the result of many years of study of the wealth building process; experience working with clients who have built considerable wealth; and my own personal experience building wealth. Newsletter subscribers should consult the Intrinsic Value Wealth Creation Pyramid as one of many useful investment tools while considering their investment plans.

The chart in this section is an expanded version of the Intrinsic Value Wealth Creation Pyramid Chart referenced in the Forbes.com article entitled, Nine Of The Best Ways To Build Wealth.


Economic Indicators

Below are links to a few of the many resources that we follow on a continuous basis to track the economy and financial markets on a short-term and long-term basis.

Real-Time and Current Economic Conditions

The Federal Reserve Bank of Philadelphia’s Aruoba-Diebold-Scotti Business Conditions (ADS) Index is designed to track real business conditions at high frequency. Click Aruoba-Diebold-Scotti Business Conditions Index to access this model.

Click GDPNow to access The Federal Reserve Bank of Atlanta’s GDPNow Forecasting Model.

The Federal Reserve Bank of New York’s Nowcast report tracks the evolution of the FRBNY Staff Nowcast of GDP growth and the impact of new data releases on the forecast. Click Nowcast to access the report and background information on the report.

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge overall economic activity and related inflationary pressure. Click CFNAI to access this index.

Economy At A Glance

The National Economic Trends charts provided by the Federal Reserve Bank of St. Louis (FRED) can be accessed by clicking the Economy At A Glance link below:

Economy At A Glance

Gross Output

Gross Output is a measure that may be more useful than the Gross Domestic Product (GDP) measure, as it looks at the top line of national income accounting. It is also a good measure to use in conjunction with GDP to get a better overall picture of the economy. This measure can be accessed by clicking the links below:

Gross Output By Industry


Gross Output (GO)

Surveys of Professional Forecasters

The Survey of Professional Forecasters’ web page offers the actual releases, documentation, mean and median forecasts of all the respondents in the Fed’s Survey of Professional Forecasters.  Click the following link to be taken to the Federal Reserve Bank of Philadelphia’s website to access the current survey: Survey of Professional Forecasters.

The Livingston Survey of Professional Forecasters’ web page offers the actual releases, documentation, mean and median forecasts of all the respondents in the Fed’s Livingston Survey. Click the following link to be taken to the Federal Reserve Bank of Philadelphia’s website to access the current survey: Livingston Survey.


Econoday offers some excellent resources for understanding and forecasting the economy. The link below takes you to Econoday’s Economic Calendar and Economic Events and Analysis sections. Please see Econoday’s Economic Calendar for upcoming economic reporting events in the week and months ahead.

AAII Investor Sentiment Survey

The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months: AAII Investor Sentiment Survey.

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