During Q1 2014, GDP declined at an annualized rate of 2.9% while employment growth increased at a rate of 1.5% meaning more workers produced less stuff and labor productivity collapsed. The last time GDP fell this much and employment increased was Q1 1974, after OPEC quadrupled the price of oil following the Arab oil embargo. Absent a shock like that, I expect both productivity and GDP to be upwardly revised.
While expecting Q1 GDP growth to be revised down to an annualized rate of -2% from the current -1%, expect the Fed to keep tapering on autopilot and reduce it by another $10 billion to $35 billion/month at the conclusion of the June 17-18 meeting. Markets will now be laser-focused on how and more importantly when the Federal Reserve plans to engineer the first increase in short-term rates since 7/06.
The 14th comprehensive benchmark revision to all GDP accounts from 1929 forward will be released later this week. The revisions will probably show faster recent GDP growth bringing it line with improved employment numbers in 2012, higher labor productivity growth, higher household savings rates and higher personal incomes. In short, households will be found to be wealthier and more frugal and the economy better than previously reported. Taper on!
