Many timelines could be applied to the term “transitory”, such as the life span of a common fly or the amount of time Dinosaurs roamed the earth…

Everything has a beginning and an end and can be deemed as transitory… The Federal Reserve Board’s (FRB) most recent language refers to the sluggish economic conditions from the first quarter as “transitory”. It is great they are temporary, but the question is if these conditions will last 1 quarter, 1 year, or perhaps longer.

It is believed by many that our whopping .2% annualized first quarter GDP (you read that right) is attributable to harsh winter weather. This is plausible as last year’s harsh winter produced a 1st quarter GDP of -2.1% annualized[1]. The part that is less plausible is the fact that this winter was not nearly as harsh as last winter, nor as heavily cited as last year’s winter as a cause.

In addition to the citations associated with winter is the fact that 1.25% of GDP production was ripped away due to trade deficits[2]. As discussed throughout much of the first quarter the strengthening dollar has made US goods look expensive abroad as well as making foreign goods look cheap here.

This issue has now translated to corporate earnings which have reflected a weakening in the large cap asset class. Those companies are more likely to be multinational and take a larger hit when converting back to dollars.

The monetary easing going on around much of the developed world (with the exception of the US) has caused a slowdown in our economic expansion. As evidenced by softening manufacturing data. On the bright side the consumer remains confident as indicated by Thompson Reuters/U of Michigan Index of Consumer Sentiment increasing to 95.9 in April from 93.0[3]


Manufacturing in Europe has picked up and talked over extending Greek debt have improved. Surely next week we will see a new breakdown in talks… hopefully not! China continues to struggle as manufacturing remains at the line between contractionary and expansionary. German interest rates climbed from near zero to .34% last week. Mainly in response to improved economic data and hope for a Greek resolution.

Improved conditions abroad (which we want to see) and the pinch that has put on U.S. companies (which we do not want to see) has resulted in a mixed bag for the economy. The FRB seems confident that this is not a long-term issue, but rather a “transitory” issue. Let us hope that transitory means one quarter.


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[1] www.investing.com – economic calendar

[2] www.mfs.com – week in review

[3] www.putnam.com – economic update