BLOG
In today's rapidly changing financial landscape, staying informed is more crucial than ever. John’s latest economic update dives into the key trends and insights shaping the markets in the 3rd quarter of 2024. Whether you're a seasoned investor, business owner or just curious about the economy's direction, this analysis provides the essential information to keep you ahead of the curve.
In today's rapidly changing financial landscape, staying informed is more crucial than ever. John’s latest economic update dives into the key trends and insights shaping the markets in the 2nd quarter of 2024. Whether you're a seasoned investor, business owner or just curious about the economy's direction, this analysis provides the essential information to keep you ahead of the curve.
As of this week, the government shutdown is now the longest in U.S. history. Granted, it is only a partial shutdown. Previous wholesale shutdowns occurred in January 2018 over immigration (specifically saving DACA-Deferred Action for Childhood Arrival) which lasted 3 days and October 2013 (over saving Obamacare) which lasted 16 days.
These prior shutdowns can be used to estimate the economic impact of the current one. According to the Office of Management and Budget, the October 2013 government shutdown lowered real GDP growth by 0.2% to 0.6% - or somewhere between $2 billion and $6 billion in lost economic output. It is estimated the current shutdown is knocking off anywhere from 0.1% to 0.5% of GDP per day. It will take quite a while for the actual impact to show up in economic stats.
It can’t get a whole lot better in the U.S. job market (or can it?). The employment situation continues blast through expectations. The number of Americans losing their jobs and applying for unemployment benefits each week remained near a 49-year low in mid-October, suggesting no visible deterioration in the U.S. labor market.
Initial jobless claims, on measure of layoffs, dropped by 5,000 to 210,000 in the seven days ended Oct. 13th. While new jobless claims edged up by 2,000 to 211,750, they have been below 220,00 since early July, a remarkable stretch last duplicated almost a half-century ago. The number of people collecting unemployment benefits, meanwhile, fell by 13,000 to 1.64 million. These “continuing” claims touched the lowest level since Aug 1973.
Additionally, Job Openings just hit a record high and the U.S. Unemployment rate has fallen to a 48-year low while hiring remains robust. The demand for labor is so strong it’s pushing up the cost of worker compensation and giving an economic growth cycle that’s now more than nine years old the staying power to become the longest expansion ever.
The 2nd quarter increase in real GDP reflected increases in consumer spending, exports, business investment, and government spending. The only decreases were in business inventory investment and housing investment. The increase in consumer spending reflected increases in services and both durable and nondurable goods. The unemployment rate is low, wages are increasing and people, in general, feel good about their financial situation. The increase in exports reflected increases in exports of goods. Clearly a result of foreign companies purchasing supplies prior to tariff rate increases going into effect.
Concerns, however remain. Last quarter we noted the possibility of the economy overheating. We now believe this is less likely because of the potential impact of a global trade war. Business activity appears to be slowing as companies weigh the odds of there being a trade war or not. As is, the tariff increases that have been implemented are small relative to global trade. The real danger continues to be the uncertainty about what happens next. If trade tensions sap business confidence, causing executives to put off capital spending and other investment decisions, then the damage could get serious. Time will tell.
Our economic indicators continue to run positive for the first quarter of 2018. Consumer spending, business investments and residential fixed investments rose at a 4.6% annual rate. Gross Domestic Product (GDP), a broad measure of the nation’s overall economic activity has shown consistent growth over the past three quarters; up 3.2% in 2017’s 3rd quarter, 2.9% in the 4th quarter and 2% in the 1st quarter of 2018.
While the economic news is positive, there is now a concern the economy is potential overheating. The period of easy money has come to an end. The Fed is raising interest rates, albeit slowly. However, there are growing employment pressures which have impelled economists and market watchers to voice concern over the potential for rapid inflation. In addition to this, global trade rhetoric and the risk of political gridlock, have marked the return of stock market volatility.
The Eurozone economy finished 2017 with a bang showing growth at the fastest pace since 2007. Year-over-year, GDP in the region grew at a 2.6% pace with Germany and Italy having picked up the pace. The German economy rose 0.8% on the quarter while France, the 2nd largest economy, and Italy both grew at 0.5% on the quarter and 2.2% annualized. However, the economic machine has throttled back to neutral. The tariff debate and other political concerns are primarily to blame. Whether or not this is a passing condition remains to be seen.
Once again, the economic metrics we follow indicate growth is strong around the world. The ultra-loose monetary policies that were implemented due to the financial crises a decade ago have led to an expanding global economy resulting in many countries continuing to see strong GDP growth. Labor markets are solid, global trade is healthy and commodity prices are higher. All of which have led to the best global growth in over seven years.
The U.S. economy is benefiting from a job market that continues to improve. Unemployment is at a historical low of 4.1% and wages are slowly rising – and should continue to do so at an accelerating rate in 2018. Housing is often the greatest indicator of how the consumer feels about the economy. Construction continues to be strong as existing home sales hit an annual rate of 5.81 million homes in November 2017, the highest level since 2006. This is still well below the levels seen in 2005 during the construction boom times. And, U.S. GDP has been revised upward to 3.2% for 2018.
If you haven’t been paying close attention to investment markets, you might be now. While the investment world spent the year 2017 plodding steadily upward with relatively low volatility, the New Year has brought with it over-exuberance in January followed by mild panic in February. Needless to say, markets have definitely caught our attention over the last few days.
Our call to “stay the course” couldn’t be stronger. We have advised folks to expect a market correction for over a year now. Markets will generally experience a 5-10% correction in any given year, yet we actually closed in on a 24 month run without one. It’s been long overdue and actually welcomed after the feverish pace at which stocks were purchased in the month of January. While the economy continues to be on solid footing, no significant changes spurred on January’s buy excitement, and nor did they contribute to the sell-off we have seen the last 2 trading days.
