This GDP Report HIDES a DANGEROUS TRUTH...

The headlines say GDP improved. The fine print tells a very different story.

Today's GDP revision and PCE inflation report reveal an economy with weaker consumers, rising core inflation, and a Federal Reserve that may be forced to keep rates higher for longer.

In this Truth Bomb, we break down what Wall Street is missing, why the consumer matters more than the headline GDP number, and why today's data could strengthen the case for more Fed rate hikes.

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Transcript

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Okay, I got a huge bomb blast for you this morning. We got two economic reports that just dropped. The financial media, of course, is going to tell you that one is good news and the other is a minor tick up, nothing to really worry about. And they're wrong on both counts. And in the next 15 minutes or so, I'm going to show you exactly why. Before we get started, if you like this type of content, please click like and don't forget to subscribe, my friends. It's important to be in the know about this stuff. This is exactly how you do it. Now, by the end of this video, you're going to understand exactly why the revision of GDP this morning is not the good news that it looks like, why a point uh one-tenth of a percentage point tick up in the headline PCE is more dangerous than it really appears, and why the Federal Reserve is now staring at a sticky inflation problem that no ceasefire, no MOU, or anything like that in the Gulf can even fix. Okay, let's start with what the media is probably saying right now. As we speak, the BEA revised Q1 GDP sharply upward this morning from the second estimate of 1.6%. On first read, that is good news, right? If you're revising GDP up, that's pretty good, right? The economy is stronger than we thought in the last revision. Meanwhile, the PCE price index, right? That's the Federal Reserve's preferred measure of inflation, that came in at 3.4% year over year from May, just to tick above April's 3.3%. The financial media will call it modest. They'll say most of it was energy, and they'll tell you that once the situation in the Gulf resolves, it'll cool right back down. That is just the surface story. Here's where I want you to slow down and read the fine print because you know me, I'm always into the fine print. Because buried inside both of those reports, the GDP number and the PCE number is a set of facts that tells a very different story than the headlines, and both point in the same direction. Let's start with, of course, the GDP. Yes, the headline was revised up, but here's the question you should always ask when GDP moves. What drove it? Because not all GDP growth is equal. Government spending counts, export flows count, inventory builds count, but none of those is the same as consumer-led growth. And consumer-led growth is the only kind that compounds and sustains over time. You know, guys, that I am obsessed with consumption. Here is what the third estimate showed this morning. Let's get into it. Personal consumption expenditures. The consumer spending component of GDP was revised downward. The headline looked better. The consumer looked worse. Let me say that again because it is the most important line in today's entire report. Please, GDP was revised up. The consumer was revised down. Personal consumption is approximately 70% of the US economy. That is why I am always obsessed with the consumer, how the consumer feels. But more importantly, how the consumer spends. It's not an input into GDP. It's essentially the same thing as GDP. When it gets revised down in a report that is otherwise being celebrated, that's not a footnote. That is the story. What you're seeing is an economy where the headline looks stronger, but the engine underneath is quietly fading. Something else filled that gap. Government outlays, export flows, inventory investment. Those do not compound, those do not sustain, and they do not tell you anything about where the consumer is headed. Now, let's talk about PCE because this is where I want you to really focus. The headline reading went from 3.3% to 3.4% year over year. That's the inflation number, one-tenth of a percentage point. And the headline driver was, of course, energy, golf tensions, oil prices, gasoline at the pump. The bears will be calling it alarming. The bulls will be dismissing it. They're both going to be partially wrong. Here's the truth bomb on PCE. The Fed doesn't watch headline PCE, not really. The Fed watches core PCE, which strips out food and energy. And core PCE, that's the sticky kind, the kind that does not go away when the Gulf cools down, also moved higher this morning. Core PCE is now at its highest level since October 2023. Think about what that means. Core PCE, core inflation, that's services, shelter, health care, education. None of those prices are going down because a ceasefire gets announced in the Middle East. Those prices move on wage dynamics. They move on demand. They move on whether the American consumer is spending or pulling back. And this is where today's two reports start to rhyme in a way that should make the Fed a little bit uncomfortable. Now, here's the shadow data that doesn't make the Chiron on TV, right? You know I love the shadow data, and you know I'm going to report it right here. The US personal savings rate, as I've told you before, is sitting at approximately 2.6% near multi-decade lows. Credit card delinquencies are at a 15-year high. I've told you that as well. The consumer is not spending from a position of strength. The consumer is spending, or more accurately, spent from a position of exhaustion. Now, the BEA is telling us that even the exhausted consumer was spending less in Q1 than we previously thought. And despite that pullback, core inflation is still rising. That combination, consumer pulling back while core prices rise, it's not a healthy sign, my friends. It is the early setup for what economists call a stagflationary dynamic. Not full stagflation yet, not quite yet, but the direction is wrong on both vectors simultaneously. If this is the kind of analysis that helps you make sense of what actually is happening, make sure you join me when I do my live reports once a week, 430s on most Thursdays. I'm going to be there today. And make sure you hit subscribe so you get all of these reports as I drop them. All right. The next six months, my friends, is going to generate a lot of noise. And I'm going to keep cutting through all of it. Okay. Let me connect this to the back uh back to the bigger picture for you right now. Because these two reports don't exist in a vacuum. Earlier this week, Bank of America, I put a video on that, published a research note calling for three additional rate hikes from the Federal Reserve, September, October, and December, taking the Fed funds rate to a target range of 4.25% to 4.5%. When that note came out, the market reaction was pretty skeptical. There were three hikes and the economy is slowing. GDP is soft. The Fed could not do that, right? Look at what just happened this morning, though, my friends. Core PCE, the Fed's preferred inflation gauge, just printed at its highest level since October 2023. Fed's mandate is 2%. I know you know that. Core PC is at 3.4%. It's 70% above the mandate. I did the math so you don't have to, and it's moving in the wrong direction. The Fed can't look through that number the way it can look through an energy spike. Energy resolves, core does not, not without intervention. And here's the brutal irony of today's data. The GDP headline looks better, the headline, which gives the Fed political cover to hike. The consumer component looks worse, which means those hikes could land on an already weakened consumer. And you know what I'm talking about. And core inflation is rising, which means the Fed may feel it has no choice. Two scenarios. Let's talk about them right now. Scenario one, Bank of America is right. The Fed looks at this morning's PCE data, sees core inflation moving toward 35-month highs, and decides it can't pause. Three hikes land in the second half of 2026. Mortgage rates move back toward 7.5% to 8%. The consumer already running on a 2.6% savings rate and maxed out credit cards completely breaks. What looked like a soft landing becomes something else entirely. Okay, scenario two. The Fed sees exactly what I'm describing. I hope they're paying attention. A consumer that is already fading in the data and it decides the risk of over tightening is greater than the risk of slightly elevated core PCE. It pauses. Maybe it cuts later in the year if labor market data deteriorates. In this scenario, housing stabilizes, consumption stabilizes, and the economy, well, it muddles through. Here's my honest read. The data this morning does not point towards scenario two. Core PC at 3.4% rising is not a data point that supports a Fed pause. It's a data point that supports the Bank of America call. And the consumer, revised down this morning, is not in a position to absorb three more hikes without something giving way. I want to leave you with one framing that pulls all of this stuff together. The GDP headline this morning is a shell game. The number got better, but the consumer got worse. Somebody else filled that gap, and somebody else is not going to show up every quarter. The PC headline is a distraction. Yes, energy moved it, but what matters is core, and core is moving in the wrong direction at the worst possible time on the weakest possible consumer foundation. The Fed's not fighting an energy shock. So your truth bomb for this morning is this GDP was revised up, and the media called it good news, but the consumer was revised down, and core PCE hit its highest level since October 23. And when the Fed, Fed's preferred inflation gauge is moving in the wrong direction on a foundation of exhausted consumer spending, no amount of headline GDP spin changes what comes next. Join me every day for Wall Street Truth Bombs, where I drop them right here before the market figures them out.