Goods & Services
A nation's economic health is primarily gauged by the amount of goods and services it produces in a given year. Goods are the tangible products--everything from toothpaste and timber to computers and automobiles--that people either consume or use until replacement (known as durable goods). Services are the intangible products--a physician providing care, or an investment officer providing advice--offered to individuals or groups. As technology advances and a nation develops, services begin taking on a much larger portion of the economic output pie. Gross Domestic Product (GDP) measures the level of goods and services produced in a country in any given year. America remains the overwhelming economic superpower in the world, producing roughly 25% of the world's $95 trillion annual GDP. One important distinction: Economic goods and services add to the economy of the nation they are produced within, not the nation where the respective company is headquartered. This fact will come back to haunt China, the world's second-largest economy, as global companies continue to diversify away their country risk by building new plants outside of the communist nation.
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Q3 2023 GDP
4.9% 26 Oct 2023 |
The US economy grew at a scorching 4.9% rate in Q3; curb your enthusiasm
On its face, a review of economic growth in the United States over the course of the third quarter appears stellar. Beating expectations, the economy grew at a whopping 4.9% annualized rate, or the fastest pace since coming out of the pandemic and over double Q2’s 2.1% growth rate. But don’t let that rosy report, which helped erase pre-market losses, fool you: it was built upon a consumer which is over-spending and racking up massive amounts of credit card debt—and a government which is doing the same. Some 70% of the headline number is tied to consumer spending, which rose 4% from the prior quarter. The remaining amount is tied to government outlays, which rose 4.6% in the quarter, increased inventories, and exports. The mantra from companies and talking heads is this: “The consumer continues to be remarkably resilient.” What a pleasant way to portray building up personal debt. Following the pandemic, Americans built a piggybank cushion of roughly $2 trillion. That figure has now dropped by 75%. The wanton spending cannot continue. The 3.8% unemployment rate certainly helped fuel the buying spree, but that figure is also showing signs of aging. Jobless claims totaled 210,000 for the most recent week, above estimates. As spending begins to slow, companies will be forced to resort to layoffs or, at the very least, reduced hiring. That, we believe, will lead to a vicious cycle over the coming several quarters. Expect Q3 to represent peak GDP for a while. Will this hot growth rate force the Fed to raise rates again next week? We don’t believe so. The slowing within the labor market—albeit minor right now—will help assuage concerns that the economy is growing too fast (thus keeping inflation elevated). We remain doubtful that there will be any more rate hikes this cycle. |
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Q3 2022
GDP 3.2% 22 Dec 2022 |
Third quarter GDP revised up to 3.2% on the back of strong consumer spending
For all of the talk about recession, the third quarter of 2022 continues to look stronger in the rear-view mirror. The initial GDP figures showed a 2.6% growth rate, which was subsequently upgraded to 2.9%, and most recently to 3.2%. This is an especially welcome revision following a contraction in each of the first two quarters of the year. The Department of Commerce report reveals strong consumer spending—especially in services such as travel and recreation—over the three-month period, and stronger-than-expected nonresidential fixed investment (think expenditures by firms on capital such as commercial real estate, tools, machinery, and factories). Defense spending also helped grow the economy. An increase in exports and a decrease in imports led to a contraction in the US trade deficit, yet another positive factor. On the flipside, the higher price of both new and used cars constrained growth, as did a drop in new and used home sales. Ironically, the upward revision in GDP led to a selloff in stocks, as investors see the report as another excuse for the Fed to keep raising rates. We don’t buy that, and still see two more 25-basis-point hikes (bringing the Fed funds rate to 5%) and then an elongated pause. |
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Q2 2022
GDP -0.6% |
We were wrong...the economy did, indeed, shrink in Q2 for a second straight contraction.
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Q1 2022
GDP -1.4% |
Yes, the US economy contracted in the first quarter of the year; but no, it won't become a trend just yet
(02 May 2022) Technically, a recession is defined as two consecutive quarters of economic contraction within an economy. How concerned should we be, then, that the US economy shrunk by 1.4% in the first quarter? In our opinion, not very. While the headline number is concerning, some comfort can be found by reviewing the internal components of the Commerce Department's report, which was released last week. Government spending actually slowed, which may not be a good thing in the eyes of economists, but in the "real world," it signals at least a modicum of fiscal responsibility. The trade deficit soared in the first quarter on a surge in imports; certainly not a desirable condition, but one which shows the American consumer is still flush with cash and willing to spend. Visualize all of those cargo ships stuck at US ports finally offloading their goods. For all of the concern over inflation, higher prices didn't seem to mute consumer spending last quarter. Fixed investment—economic jargon for the purchase of physical assets such as machinery, land, buildings, and other hard assets—grew a whopping 7.3% in Q1, versus a 2.7% growth rate in the same quarter of last year. Hardly a sign that businesses are buckling down in anticipation of a pending recession. In short, don't expect a consecutive contraction when the Q2 GDP numbers are released in July. In the past, slowing GDP figures would have certainly played a major role in the Fed's decisions on rates. However, with runaway inflation taking center stage, we still expect a slew of rate hikes this year. By the time the next recession rolls around, probably at some point in 2023, expect more normalized long-term interest rates—which we would anticipate being in the 4.50% range. That is a good thing, as it would give the Fed something to work with should it need to begin loosening once again. |
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2021
GDP 5.7% |
Another argument for rate hikes and Fed balance sheet reduction: Q4's strong GDP figures
(31 Jan 2022) Much of January's market correction could be placed at the feet of the Fed's well-telegraphed pending rate hikes, but does the American economy really need near-zero interest rates any longer to sustain growth? Not according to one very important economic metric. Fourth quarter GDP numbers are in, and they easily surpassed all expectations. Against economists' predictions calling for a growth rate of 5.5% annualized in Q4, the aggregate of all goods and services produced in the US for the last three months of the year actually grew by 6.9%. With four quarters now in the books, we have our preliminary read on 2021's US GDP: 5.7%. How good is that? The figure is over double the ten-year average growth rate of 2.47%, and represents the strongest full year growth since 1984. Impressively, the gains were brought about by a dual springboard of higher consumer activity and increased business spending—all while government spending decreased. Considering the supply chain issues which hampered growth in the fourth quarter, we see economic growth remaining strong throughout 2022 as these issues slowly abate. The United States accounts for 25% of the world's $95 trillion economy, with China coming in second place at 17%. It is interesting to note that we have passed the date by which many economists and business journalists told us that China would surpass America as the world's largest economy. Of course, they made these projections based on the faulty logic that an emerging market economy could sustain a double-digit growth rate as its economy grew. Additionally, with global companies finally diversifying their country risk away from China, that imaginary no-later-than date has been moved out even further. |
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Q3
2020 GDP |
Following the sharpest economic decline in US history, the sharpest expansion
(29 Oct 2020) In the second quarter of 2020, the US economy recorded an almost unfathomable decline of 31.4% (thanks, China). Now, one quarter later, we have the strongest economic growth, quarter-over-quarter, in US history. Against expectations for a 32% expansion, Q3 GDP came in at 33.1% annualized clip according to the Commerce Department. GDP measures the total goods and services produced within a country over a one-quarter period. Putting that number in perspective, the previous record high GDP came in the first quarter of 1950 when the US economy expanded at a 16.7% annualized rate. Even more encouraging than the whopping headline number is where the growth came from. Strong exports, increased business investment, and residential purchases of durable goods all fueled the quarter's growth. These three components don't grow if businesses and consumers are hunkering down in anticipation of bad times ahead. Certainly, the massive new wave of Covid cases has spooked the markets, but confidence remains strong that we are on the tail end of the pandemic's wrath. As for the markets, expect positive vaccine news over the course of the quarter to fuel a year-end rally. We stand by our 2020 S&P target of 3,500, which we set in May of this year. |
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Q3
2019 GDP |
(20 Dec 2019) Q3 GDP had been previously revised up to 2.1%, which remained unchanged on its second revision today.
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Q3
2019 GDP |
A coming recession looks less and less likely as Q3 GDP rolls in at a decent clip. (30 Oct 2019) Against expectations for a 1.6% growth rate, the US economy actually grew 1.9% in the third quarter, mainly on the back of strong consumer spending. While business investment continues to pull back, a fifty-year-low unemployment rate has most Americans feeling good about their situation, as evidenced by their spending habits in the quarter. October payrolls also came in hot, hitting 125,000 and beating expectations by 25%. The final piece of the puzzle was government spending, which rose at a 2% annualized rate in the quarter. Not exactly scorching economic growth in Q3, but certainly no signs of a contraction in sight. Add a third rate cut to the mix, and the US economy should continue to chug along. Here's our prediction for the fourth quarter with respect to the trade war: The president and his economic team fully understand that the 15 December tariffs, if put in place, will have a negative impact on consumer spending (a slew of consumer goods will be hit with a 25% fee). Therefore, it will behoove the administration to make some sort of deal which will allow them to pull those tariffs off the table, at least temporarily. While we still believe the Xi regime thinks it can outlast the Trump Administration, they have to see a dearth of candidates who would be willing to make a sweetheart deal and return to the "good old days" of unfettered trade. Therefore, they should also be willing to move the needle forward with respect to a Phase 2 deal. This means we also expect to see a Phase 1 deal signed within 45 days. All of this reiterating our belief that a US recession over the next twelve months is unlikely.
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Q1
2019 GDP |
First-quarter's blockbuster GDP number blows negative expectations out of the water. (26 Apr 2019) Economists had been preparing us for the ugly numbers to come. On 28 March, we wrote about the final Q4 GDP growth rate of 2.2%, and average economist predictions for a 1.5% first quarter. While that average worked its way up to a 2.5% growth rate, even that wasn't close: the US economy grew at a scorching 3.2% pace in the first three months of the year. Virtually no one predicted such a healthy economy to start the year. Not only is the first quarter notoriously weak (compared to the others), we also had the lingering hangover of a government shutdown to deal with. What led to the unexpected growth? Exports of US goods actually rose 3.7%, state and local government spending ticked up, and companies spent more to build up their inventories. Private investment in intellectual property, which includes R&D, software investment, and new proprietary processes, grew 8.6%. That last statistic torpedoes the argument that companies simply spent their tax cut "windfall" on buying back shares instead of putting it to work in the company. As for the building up of inventories, perhaps companies are placing a bet that a massive trade deal with China is around the corner. Putting together a 3.2% first quarter GDP bodes well for the remainder of the year. For all the talk of a global economic slowdown, we don't see any reason why the US economy can't piece together another 3% year.
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Q4
2018 GDP |
Final read on fourth-quarter GDP comes in as expected, so we now know the rate of growth for the US economy in 2018. (28 Mar 2019) The final expected read on growth in the US for the fourth quarter of 2018 was 2.2%, and that is precisely the number we got. The puzzle is now complete for the year, with quarterly growth of: 2.2%, 4.2%, 3.4%, and 2.2%, respectively. Add those figures up and divide by four and we have the US GDP rate of growth for the year: 3% on the nose. Now, the real question becomes whether or not we can pull out another 3% growth year in 2019. Reductions in consumer spending on goods (rather than services), as well as reduced government spending at both the state and national levels helped stifle the Q4 figure, but are either of those factors really a bad thing? The first predictions for Q1 are coming in, with an average expected growth rate of 1.5%—lower than any of the 2018 figures. The hopes are that the first quarter of the year will represent the trough, with the final three quarters of the year coming in higher. If a massive trade deal gets done and the global economy stabilizes, that is a probability. Here's our ideal scenario for the economy and the markets this year: growth picks back up, but not so much that the Fed feels the need to change course yet again and raise rates one more time. If that scenario plays out, it should provide the rich soil for a nice, double-digit growth rate for the markets in 2019.
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Manufact.
capacity |
US manufacturing capacity rises for 16th straight month. (16 Oct 2018) The American industrial resurgence marches on. Manufacturing capacity, which is the capability of a plant to produce output for a specified period of time, rose in the United States for the sixteenth-straight month, adding fuel to America's economic engine and providing some support for recent stock market valuations. The Federal Reserve, which compiles the report, also noted that US factory output rose in September, pushing overall production up 0.3% for the month. US oil and gas production, which has steadily increased over the past eighteen months, was an important component of the glowing report, as were the corporate tax cuts, which spurred industrial companies to spend more on increasing their overall plant capacity.
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Back on top: US has the world's most competitive economy. (06 Jun 2018) Among the world's most competitive economies, the United States has retaken the lead, beating out Hong Kong, Singapore, and the Netherlands. This is according to an annual ranking by the Switzerland-based IMD World Competitiveness Center, which offers benchmarking services for both countries and companies based on relevant available data. The US leapfrogged three countries from 2017 to take the top spot. The bottom spot on the list? Venezuela. (See: "Maduro signed his own death warrant with rigged election.")
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GDP
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Fourth-quarter GDP revised up to 2.9%, showing US economic momentum continues to build
(28 Mar 2018) The US Department of Commerce revised upwards its view of the US economy in the fourth quarter of 2017, as reflected by the gross domestic product—a reading of the goods and services produced throughout the country. Instead of the 2.5% initially reported, the economy actually grew at a 2.9% annualized rate for the quarter; more in line with Q2's 3.1% and Q3's 3.2% respective growth rates. More good news coming from the report: businesses are apparently using their tax overhaul benefits to actually invest in their companies. Capital expenditures on new equipment rose by 11.6% in the quarter. So much for the theory that companies would hoard the cash savings instead of spreading the wealth to employees and on capital expenditures. |
US manufacturing notches best year since 2004
(03 Jan 2018) According to the Institute for Supply Management (ISM), US manufacturing expanded at its fastest pace in a quarter last month, putting the cherry on top of the best month for American factories in thirteen years. The ISM's factory index, in which any number below 50 represents contraction and any number above 50 represents expansion, surged to a reading of 59.7, indicating a healthy and growing domestic economy. Increased spending in the US by both corporations and individuals, in addition to increased exports of goods, helped the number's ascent.
(03 Jan 2018) According to the Institute for Supply Management (ISM), US manufacturing expanded at its fastest pace in a quarter last month, putting the cherry on top of the best month for American factories in thirteen years. The ISM's factory index, in which any number below 50 represents contraction and any number above 50 represents expansion, surged to a reading of 59.7, indicating a healthy and growing domestic economy. Increased spending in the US by both corporations and individuals, in addition to increased exports of goods, helped the number's ascent.
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GDP
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Second read on Q3 GDP shows US economy growing even faster than expected
(29 Nov 2017) When the first read on the American economy for the third-quarter was released, it surprised to the upside. Economists had been predicting 2.7% growth; instead, it came in at a 3% clip. Now comes the first revision of the number, and it is even better: the US economy grew at a 3.3% rate for Q3. It has been awhile since the US has experienced two straight quarters of 3%-plus growth (Q2's GDP was 3.1%). Business confidence helped feed this number, with companies increasing their investment in equipment by 10.4%. |
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GDP
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Despite hurricanes, US economy was still able to expand at 3% clip in Q3
(27 Oct 2017) Beating all expectations for a muted quarter, the US economy just put together back-to-back quarters of 3%+ growth. With the slowdown in consumer spending and construction due to the hurricanes which hit Florida and Texas, economists were hoping for a 2.7% GDP growth rate for the quarter; none were expecting the 3% figure. A 2.3% increase in exports and a decrease in imports helped the economy achieve the impressive figure. We never believed the days of 3% economic growth in America were over. We heard the same garbage in the late 1970s, and didn't believe it then, either. |
US trade deficit drops to lowest level in 11 months
(06 Oct 2017) The US trade deficit—what we import minus what we export—fell to $42.4 billion in August, which is the most narrow it has been since September of 2016. For the month, imports dropped by 0.1% while we exported 0.4% more goods. Primary export drivers were drugs and semiconductors. It's a tricky balance between prosperity and trade. The more prosperous Americans are, the more they buy, which equates to more imports. The trick is to ramp up production of goods here in the US that citizens from around the world want to own. Imagine the trade deficit were it not for Apple (AAPL), for example, or Boeing (BA).
(06 Oct 2017) The US trade deficit—what we import minus what we export—fell to $42.4 billion in August, which is the most narrow it has been since September of 2016. For the month, imports dropped by 0.1% while we exported 0.4% more goods. Primary export drivers were drugs and semiconductors. It's a tricky balance between prosperity and trade. The more prosperous Americans are, the more they buy, which equates to more imports. The trick is to ramp up production of goods here in the US that citizens from around the world want to own. Imagine the trade deficit were it not for Apple (AAPL), for example, or Boeing (BA).
US economy jumps to second-most competitive in the world
(27 Sep 2017) Climbing to a position it has not held in eight years, the United States suddenly has the second-most competitive economy in the world, following Switzerland. The Global Competitiveness Report ranks 137 economies based on such factors as efficiency and innovation, higher education, automation, and the regulatory environment. Taxation remains the largest barrier to the US reclaiming the number one spot; hopefully that will soon be rectified.
(27 Sep 2017) Climbing to a position it has not held in eight years, the United States suddenly has the second-most competitive economy in the world, following Switzerland. The Global Competitiveness Report ranks 137 economies based on such factors as efficiency and innovation, higher education, automation, and the regulatory environment. Taxation remains the largest barrier to the US reclaiming the number one spot; hopefully that will soon be rectified.
Second quarter American growth upgraded to a stunning 3%
(30 Aug 2017) Second-quarter GDP in the US was revised UP from 2.6% to 3%. That is huge, as so many economists said the days of 3% growth in the US were long gone. Sort of the same talk we heard back in the late 1970s before the renaissance of the 1980s. To be sure, one quarter does not make a trend, and we need to see 3% growth or better in the annual numbers. Nonetheless, the journey begins with one quarter’s numbers. Here’s to Q2’s economic activity carrying forward and proving all the naysayers wrong…once again.
(30 Aug 2017) Second-quarter GDP in the US was revised UP from 2.6% to 3%. That is huge, as so many economists said the days of 3% growth in the US were long gone. Sort of the same talk we heard back in the late 1970s before the renaissance of the 1980s. To be sure, one quarter does not make a trend, and we need to see 3% growth or better in the annual numbers. Nonetheless, the journey begins with one quarter’s numbers. Here’s to Q2’s economic activity carrying forward and proving all the naysayers wrong…once again.
(28 Mar 2017) US trade deficit for goods falls 6% in February. The US trade deficit for goods—the physical items we export minus what we import—fell from $68.8 billion on January to $64.8 billion in February, representing a 6% decline in the figure. The Bureau of Economic Analysis (BEA) will release the full report next week, showing the overall (both goods and services) trade deficit for February.
(27 Feb 2017) Durable goods orders up 1.8% in January, boosted by aircraft sales. Orders for durable goods—products designed to last more than three years—made in the USA jumped by 1.8% from December to January, largely on the back of new aircraft orders. The seasonally-adjusted figure of $230 billion includes a 70% increase in orders for civilian aircraft and parts, and a 60% increase for defense aircraft and parts. While an improvement over December, for a president bent on bringing back American manufacturing this is still not good enough. The durable goods figure was about in line with Q4's 1.9% GDP growth figure. President Trump has made it clear that he wants to see America return to the days of 3% annual growth—a very doable feat with the right leadership and a reduction in stifling federal regulations.
Trade deficit widens in November
(06 Jan 2017) File under the “what’s new” category. The US trade deficit widened to $45.3 billion in November, a 6.8% increase over October’s figure. The US exported $185.8 billion worth of goods for the month, but imported $231.1 billion over the same period.
Annualize that figure and there goes over half-a-trillion dollars from the US economy. Unacceptable. At a very minimum, exports and imports should cancel each other out. I think we could use another $543 billion per year infused into our economy, right?
These figures also make laughable the Chicken Little economists telling us that Donald Trump will incite a trade war. I would say we have already lost every battle of that war which, by the way, has been raging on for a generation.
(06 Jan 2017) File under the “what’s new” category. The US trade deficit widened to $45.3 billion in November, a 6.8% increase over October’s figure. The US exported $185.8 billion worth of goods for the month, but imported $231.1 billion over the same period.
Annualize that figure and there goes over half-a-trillion dollars from the US economy. Unacceptable. At a very minimum, exports and imports should cancel each other out. I think we could use another $543 billion per year infused into our economy, right?
These figures also make laughable the Chicken Little economists telling us that Donald Trump will incite a trade war. I would say we have already lost every battle of that war which, by the way, has been raging on for a generation.
From the Editor
Can America be great again? That question is as silly now as it was in the 1980s
(28 Nov 16) I remember it. I lived it. I saw it with my own eyes. In the latter part of the 1970s, the American psyche was in the gutter. Abroad, the Japanese seemed to be eating our economic lunch. At home, we were living through an economic “malaise.” A sweater-laden caricature of a president sat in the Oval Office telling Americans to turn down their thermostats. Race riots...gas lines...52 hostages...a record crime rate in our inner-cities. I recall, clearly and distinctly, the media telling this nation that its days as an economic superpower were, for all intents and purposes, behind it. The “new norm” was mediocrity. We had our post-war boom; it was time to realize that we were no better than the Soviet Union (we were) and no more of an economic powerhouse than Japan (they are entering their third decade of malaise). In other words, we were being spoon-fed the same pablum forty years ago that we are now, by the same tired, worn-out, yellow press corps.
But something happened in 1980. Ronald Reagan snapped Americans out of their trance-like state and made us believe again. We woke up to a new “morning in America,” realizing that we had been living in this shining city on a hill the entire time; our detractors had simply brainwashed into believing otherwise.
It feels a lot like the Christmas season of 1980. Suddenly, the communist Chinese government doesn’t seem so ominous, a 4% GDP seems realistic, and visions of brand new American skyscrapers are dancing in our heads. Even tech giant Apple is hinting that, just perhaps, an iPhone can actually be assembled in the United States.
Less than three months after John F. Kennedy sauntered into the Oval Office in his Brooks Brothers suit for the first time, the Soviet Union launched Yuri Gagarin into orbit—the first human to accomplish that feat. It was evident to the world that America was behind in the Space Race. In a brilliant speech to students at Rice University in late summer, 1962, Kennedy laid out his plans for what would end up being a $30 billion ($202 billion in today’s dollars) program that would place a human on another world for the first time in history. Anything was possible.
It was nearly two decades between Kennedy’s moonshot speech and Ronald Reagan’s inauguration. Now, 35 years after the latter, it is time for another moonshot. Americans are hungry. They are tired of the divisiveness...the crime...the mediocrity...the garbage being sold to them by a jaded and skewed media—a group of individuals who couldn’t assemble a visionary idea if it consisted of ten jumbo Lego blocks laying on a mat in front of them.
Americans are ready to get back on the trajectory that made this country the world’s economic engine, and the only country to ever land a man on the moon. We are told that we can no longer compete in the manufacturing arena. Yet Tesla is now churning out 25,000 American-made vehicles per quarter, and its CEO, Elon Musk, is building a rocket with the capability to carry Americans to Mars. He will have competition from the United Launch Alliance, comprised of American companies Boeing and Lockheed Martin. General Electric has designed the most advanced nuclear power plant in the world. Medtronic has built a bionic pancreas the size of a smartphone. (Sadly, Medtronic is an American company now headquartered in Ireland due to the onerous US corporate tax rate.)
From robotics and artificial intelligence to transportation and engineering, there are literally hundreds of thousands of organizations in America on the cutting edge of technology. All but a handful go unnoticed by the general public; they quietly remain focused on their respective missions. Unfortunately, the only government agencies which seem to have them on their radar screens are the IRS, the EEOC, and the EPA. We get the feeling that is about to change.
Outline an overarching set of national goals, unleash the unfettered energy of American industry, and the sky is the limit. Bring our corporate tax rates in line with the rest of the industrialized world, let companies focus on creating products rather than on dealing with Soviet-like bureaucrats, and see what happens to America’s GDP rate. In this week’s issue, we lift the shroud on some of our most promising industries, and the companies ready to lead the charge.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 4, Issue 48.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Can America be great again? That question is as silly now as it was in the 1980s
(28 Nov 16) I remember it. I lived it. I saw it with my own eyes. In the latter part of the 1970s, the American psyche was in the gutter. Abroad, the Japanese seemed to be eating our economic lunch. At home, we were living through an economic “malaise.” A sweater-laden caricature of a president sat in the Oval Office telling Americans to turn down their thermostats. Race riots...gas lines...52 hostages...a record crime rate in our inner-cities. I recall, clearly and distinctly, the media telling this nation that its days as an economic superpower were, for all intents and purposes, behind it. The “new norm” was mediocrity. We had our post-war boom; it was time to realize that we were no better than the Soviet Union (we were) and no more of an economic powerhouse than Japan (they are entering their third decade of malaise). In other words, we were being spoon-fed the same pablum forty years ago that we are now, by the same tired, worn-out, yellow press corps.
But something happened in 1980. Ronald Reagan snapped Americans out of their trance-like state and made us believe again. We woke up to a new “morning in America,” realizing that we had been living in this shining city on a hill the entire time; our detractors had simply brainwashed into believing otherwise.
It feels a lot like the Christmas season of 1980. Suddenly, the communist Chinese government doesn’t seem so ominous, a 4% GDP seems realistic, and visions of brand new American skyscrapers are dancing in our heads. Even tech giant Apple is hinting that, just perhaps, an iPhone can actually be assembled in the United States.
Less than three months after John F. Kennedy sauntered into the Oval Office in his Brooks Brothers suit for the first time, the Soviet Union launched Yuri Gagarin into orbit—the first human to accomplish that feat. It was evident to the world that America was behind in the Space Race. In a brilliant speech to students at Rice University in late summer, 1962, Kennedy laid out his plans for what would end up being a $30 billion ($202 billion in today’s dollars) program that would place a human on another world for the first time in history. Anything was possible.
It was nearly two decades between Kennedy’s moonshot speech and Ronald Reagan’s inauguration. Now, 35 years after the latter, it is time for another moonshot. Americans are hungry. They are tired of the divisiveness...the crime...the mediocrity...the garbage being sold to them by a jaded and skewed media—a group of individuals who couldn’t assemble a visionary idea if it consisted of ten jumbo Lego blocks laying on a mat in front of them.
Americans are ready to get back on the trajectory that made this country the world’s economic engine, and the only country to ever land a man on the moon. We are told that we can no longer compete in the manufacturing arena. Yet Tesla is now churning out 25,000 American-made vehicles per quarter, and its CEO, Elon Musk, is building a rocket with the capability to carry Americans to Mars. He will have competition from the United Launch Alliance, comprised of American companies Boeing and Lockheed Martin. General Electric has designed the most advanced nuclear power plant in the world. Medtronic has built a bionic pancreas the size of a smartphone. (Sadly, Medtronic is an American company now headquartered in Ireland due to the onerous US corporate tax rate.)
From robotics and artificial intelligence to transportation and engineering, there are literally hundreds of thousands of organizations in America on the cutting edge of technology. All but a handful go unnoticed by the general public; they quietly remain focused on their respective missions. Unfortunately, the only government agencies which seem to have them on their radar screens are the IRS, the EEOC, and the EPA. We get the feeling that is about to change.
Outline an overarching set of national goals, unleash the unfettered energy of American industry, and the sky is the limit. Bring our corporate tax rates in line with the rest of the industrialized world, let companies focus on creating products rather than on dealing with Soviet-like bureaucrats, and see what happens to America’s GDP rate. In this week’s issue, we lift the shroud on some of our most promising industries, and the companies ready to lead the charge.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 4, Issue 48.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Pending Home Sales Plummet 3.7% in May
(30 Jun 16) Pending home sales—a metric which peers into that window between a contract being signed and the actual closing taking place—declined year-over-year for the first time in over two years. May’s read came in at a 3.7% decline, which was well weaker than the expected number. Why, with mortgage rates at multi-generational lows, did the number disappoint, and how worrisome is it for the overall health of the US economy?
The main thrust for the decline appears to be the tight housing market—there are simply not enough units to keep up with demand. The National Association of Realtors (NAR), in fact, projects the sale of existing homes will actually rise to 5.44 million units in 2016, which would be a nearly 4% increase over 2015. But rising home prices have kept many would-be sellers from “buying up.” They see their own property values going up, but are shell-shocked by the asking price in the next tier group.
Potential buyers looking for properties in the mid-tier segment are frustrated by the fierce competition and rising prices for the homes that are coming on the market. First-time home buyers find themselves in the biggest jam, caught between rental rates that are spiking and home prices that are going up. The big winners in this dynamic? Home sellers with properties valued between $200k and $350k. (Reprinted from next Sunday's Journal of Wealth & Success, Vol. 4, Issue 26.)
(OK, got it. Take me back to the Penn Wealth Hub!)
(30 Jun 16) Pending home sales—a metric which peers into that window between a contract being signed and the actual closing taking place—declined year-over-year for the first time in over two years. May’s read came in at a 3.7% decline, which was well weaker than the expected number. Why, with mortgage rates at multi-generational lows, did the number disappoint, and how worrisome is it for the overall health of the US economy?
The main thrust for the decline appears to be the tight housing market—there are simply not enough units to keep up with demand. The National Association of Realtors (NAR), in fact, projects the sale of existing homes will actually rise to 5.44 million units in 2016, which would be a nearly 4% increase over 2015. But rising home prices have kept many would-be sellers from “buying up.” They see their own property values going up, but are shell-shocked by the asking price in the next tier group.
Potential buyers looking for properties in the mid-tier segment are frustrated by the fierce competition and rising prices for the homes that are coming on the market. First-time home buyers find themselves in the biggest jam, caught between rental rates that are spiking and home prices that are going up. The big winners in this dynamic? Home sellers with properties valued between $200k and $350k. (Reprinted from next Sunday's Journal of Wealth & Success, Vol. 4, Issue 26.)
(OK, got it. Take me back to the Penn Wealth Hub!)
A Weakening World Economy Threatens Our Growth at Home
(26 Oct 15) A couple of decades ago I worked at a regional brokerage firm based out of the Midwest. The company had a corny saying they encouraged us to use with our clients: “About every four years, Mr./Ms. Client, you are going to feel like throwing a brick through my window. When you do, just make sure there is a check tied to it!” The implied meaning of this message was that the economy goes through relatively predictable cycles of growth, peak, contraction, and trough, and that the typical cycle lasts about four years. For the markets, this meant that we could generally expect about one down year every four years or so.
The one-year timeframe between mid-2008 and mid-2009 was certainly one of those “brick” periods, brought on by the financial crisis. Since then, however, the markets have been pretty rosy. That is despite the fact that we did not have the accompanying economic growth trajectory one would expect. The US economy just sort of trudged along, with OK jobs numbers, mediocre GDP growth, and “meh” manufacturing production.
Another factor glaringly absent during this latest “growth” cycle has been rate hikes by the Fed. The target Fed funds rate has remained at zero. Chairman Yellen has emphasized that the Fed will be “data dependent” with respect to beginning the next rate hike cycle, and the data has, quite frankly, been lackluster. While the unemployment rate has dropped to 5.1%, one cannot overlook the fact that a record number of job-aged Americans are not being counted because they have simply dropped out of the labor force.
While two-thirds of US GDP growth is accounted for by the US consumer, one can also not discount the world economy’s role in our own rate of growth. One look at the accompanying chart, which reflects world GDP growth for the past five years, shows that a deep slowdown has been occurring—post financial crisis. The greatest way for the US economy to soar is for people and businesses residing outside of our shores to buy our goods and services. All of the trade deals in the world will not overcome a weak global economy.
(Reprinted from this coming Sunday’s Journal of Wealth & Success, Vol. 3, Issue 42.) (OK, got it. Take me back to the Penn Wealth Hub!)
The Unacceptable US Trade Deficit and its Enablers
Don’t believe what the politicians and America-bashers are telling you, a deficit is not the natural order of things.
Using the strong dollar as an excuse for our August imports outpacing our August exports by $48 billion would be like Apple telling analysts that nobody was buying iPhones because they are too expensive. The only problem with that comparison is that Apple is actually doing its job and selling products, not making excuses.
If it’s all about the strong dollar why, then, didn’t we run a trade surplus when the dollar was getting hammered by the euro for three years? No, if the US cannot compete globally because the US dollar is nearing parity to the euro, then the problem lies not in our currency, it lies in our government.
The same mental disorder (known as career politicianism) that said it was alright to spend $3 trillion per year, even though only $2 trillion was flowing in, now proclaims that a deficit is the natural order of things. So is China taking over the world, we suppose.
We guess that defeatist attitude is the reason the administration refuses to lift the ban on the export of crude oil and, for all intents and purposes, liquefied natural gas. (Sure, the DOE tells us they are preparing permits for the latter, but please pardon our skepticism, considering this is the same bunch that hasn’t allowed a nuclear facility or refinery to be built on US soil since the late ‘70s).
Unions tell us Wal-Mart buys too much from China. America-bashers (at home and abroad) tell us China is simply taking its inevitable crown as ruler of the known universe (along with their one aircraft carrier). Both of these groups will be proven wrong when true leadership returns to center stage. (Reprinted from the Journal of Wealth & Success, Vol. 3 Issue 38.) (OK, got it. Take me back to the Penn Wealth Hub!)
Turns out GDP Actually Rocked in Q2, but will it Hold?
(28 Aug 15) It doesn’t seem very long ago that we were being spooked by the initial Q1 read on the economy, which showed a contraction of 0.7%. Although revised up, economists were relatively dour on the first half of the year. Following the Chinese stock market meltdown, which bled over into our markets, investors got some good news, however, when the 2nd quarter GDP revision came in at a very respectable 3.7%.
Even more encouraging than the overall number, which represents a 60% increase from the initial 2.3% figure, are the internals of the report. Nearly every area of the economy, from business spending to housing to government spending (take that one with a grain of salt) saw a revision higher. Consumer spending rose, business investment grew 3.8%, housing was revised up to 7.8% growth, and government spending ramped up 1.8%.
If there was one concern with the revision it was the buildup of business inventories. Companies added an inventory of $12.1 billion of goods—$11.1 billion more than estimated. Perhaps they expected a more robust world market for their goods, but discovered a languishing China and an anemic Europe instead.
Regardless of the reasons for the buildup, this factor could weigh on Q3 growth; but consumers should find some nice clearance table deals!
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 35. Not a member? Click Here.)
(OK, got it. Take me back to the Penn Wealth Hub!)
GDP a Yawner, but at Least it is Positive
((30 Jul 15) The first look at second quarter GDP was released on Thursday, and it was “meh.” One bright spot was that the first quarter, which had already been revised up to a 0.2% contraction, actually went positive. If the first quarter were the year, we would end up with a GDP of 0.6% for 2015.
The second quarter came in at a 2.3% rate, which is less than had been expected, but not terribly bad. Actually, let’s back up: It is our opinion that anything below 4% is unacceptable; don’t let the talking heads tell you that the days of 4%+ growth are gone—it has to do with bad policy, not loss of American might.
Now, let’s pour some more cold water on the number. It appears that the government has been cooking the GDP stew for at least the past three to four years. They were caught, and Commerce department “revisions” were quietly released which show a weaker economy than reported over the last 12 quarters or so. Anyone surprised? According to the bald banshee, CNBC Chief Economist Steve Liesman, trying to accurately gauge the economy is “really, really, really, tough.” Maybe so, but it doesn’t help having political hacks massaging the numbers.
Were the recent numbers strong enough for Yellen to hold off on raising rates this year? Almost assuredly not. She has all but promised, barring any massive and dark unknown showing its face, the methodical rate hikes will begin in 2015. Hats off to her—she is sharp (certainly more so than Bernanke).
The sluggish numbers this year have been blamed on a strong dollar (yeah), consumers not spending as much (yeah—they are saving more), and reduced business investment (boo). Gas prices, which have been halved since last year, really didn’t spur much economic activity.
Let’s take a closer look at the second factor, consumer spending. The US consumer accounts for an overstuffed two-thirds of economic output. This is one reason economists lament a slowdown in consumer spending, even if that translates to “over-spending.” If we forced China, for example, to open its market to US goods the way we welcome Chinese goods, Americans could be responsible savers and the US economy could be chugging along at 5% per year.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 30.) (OK, got it. Take me back to the Penn Wealth Hub!)
Home Building Surges in April
(21 May 15) US new home construction surged 20% in April, the largest percentage increase since 1991 and the highest reading of new starts since 2007.
As the markets enter their “worst six months,” historically, of the year, the housing news helped quell investor fears that the markets have far outpaced true economic activity and are due a pullback.
But what of the great shift away from home ownership and to apartment and condominium living? While the April figures did show a healthy growth rate in the construction of single-family homes (up 16.7%), the rapid pace of multifamily dwellings continued, rising 27.2%.
Is this really bad news, however, or a sign that Americans are becoming more adept at living within their means? For the past two generations, the typical American worker has counted their home as a big part of their overall financial portfolio; perhaps the shift into multifamily dwellings will also mean a spike in retirement savings. Time will tell.
Certainly, low interest rates have had an effect on new home construction and overall real estate activity, which is one of the reasons the Fed has continued to keep rates at historically low levels. One year ago, the average 30-year mortgage rate was floating around 4.3%—good by nearly any measure. Today, however, that rate has fallen to 3.85%, enticing more American families to make the plunge.
When rates inevitably go up, economists worry that the number of new mortgage apps will fall precipitously, with a ripple effect being felt throughout the economy. That is one reason we do not see the Fed pulling the trigger on rate hikes until late this year or early next.
According to real estate firm Zillow, the median home value has risen 3% over the past year, to $178,400. The firm is projecting another 2% rise in values over the next 12 months.
(Read what percentage of the typical American worker’s salary is used to pay the monthly mortgage bill in this Sunday’s Journal of Wealth & Success, Vol. 3, Issue 21.) (OK, got it. Take me back to the Penn Wealth Hub!)
U.S. Balance of Trade is a Joke; at -$51.4 Billion in March
(Tu, 05 May 15) When oil was over $100 per barrel, and before the US became the new global energy king, it was somewhat understandable that the US trade deficit—the amount we import minus the amount we export—was so large; understandable, not acceptable. Now that the US is virtually energy independent, and oil is down 40%, there is absolutely no excuse for the kind of trade deficit the US recorded in March.
Here’s a look at the numbers reported Tuesday morning. The US imported, in March, $51.4 billion more in goods than we exported, amounting to the worst monthly figure since October, 2008—all the way back to one month before the 2008 elections. US exports did rise 0.7% in the month, but that paled in comparison to the 7.7% hike in imports.
So what was imported? Certainly not oil. Petroleum imports fell by $1.1 billion in the month, but non-petroleum imports rose by an almost unfathomable $17.5 billion (keep in mind, that figure is for one month). The end of the West Coast ports strike was cited as one reason for the ugly number—yes, there were a lot of ships that could not get out, but a multiple of that number could not get in. What does this mean for the already lousy first quarter GDP figure? It will certainly be revised down from its initial +0.2% read. In fact, Q1 GDP is now tracking down 50 basis points, to -0.3%, and Q2 is already being projected down 30 basis points from previous estimates, to +2.7%. That does not portend a strong 2015 US economy.
So what’s the upshot? First, hopefully it will spur the politicians to ease-up on onerous corporate tax rates which encourage US companies to produce more overseas than at home (keeping the cash overseas). Secondly, it will probably postpone those pesky rate hikes which are undoubtedly on their way.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 3, Issue 19.) (OK, got it. Take me back to the Penn Wealth Hub!)
U.S. Trade Deficit Falls to Four-Year Low
(08 Jan 14) The figures are out on the U.S. trade deficit for November, and the news is good. The nation's trade deficit dropped from nearly $40 billion in October to a seasonally adjusted $34.3 billion in November on the back of increased American energy production, which reduced the amount of oil imports in the month. This is the lowest the trade deficit has been since October of 2009.
The one-two punch of increased exports and reduced oil imports adds fuel to stories of an improving economic environment in the U.S. Before the trade report was released, economists had been predicting a final GDP growth rate of 2.3% for 2013, but many raised their projections to 3% following the report. It has been awhile since the U.S. has been chugging along at the old norm of 3% to 4% growth per year, leading the naysayers to call lower growth the new norm. Another part of the equation is the slowing growth in China, which has seen "typical" growth rates of 7% over the past several years. Internal challenges are putting pressure on Chinese growth numbers, which bodes well for U.S. manufacturers.
Without a doubt, the big story for U.S. growth has been the energy renaissance in the country. Increased domestic energy production not only strengthens the U.S. hand against thugs like Putin and his allies in Venezuela and (now) Brazil, it also reduces the importance of the Organization of the Petroleum Exporting Countries, or OPEC. To crystallize how important U.S. energy production is to the health of the economy, consider this: while we are celebrating a $34 billion trade deficit in November, the U.S. still imported $28.5 billion of foreign petroleum over that 30-day period--the lowest level in three years.
U.S. Manufacturing Growth Hits 11-Month High
(2014.01.02) U.S. manufacturing appears to be getting its stride back, according to data released by the Institute for Supply Management (ISM). The ISM's Purchasing Managers' Index (PMI), which gauges manufacturing levels in the U.S., maintained a level of 57.0 in the last month of the year, beating expectations. Any reading above 50 means that expansion is taking place in an economy.
The PMI is a composite index composed of five sub-indicators: production levels, new orders, supplier deliveries, inventories, and the level of employment. Purchasing managers respond to questions in each of these five areas, with the resulting answers being calculated in the PMI index--a figure between 0 and 100. While manufacturing has been on the decline in the U.S. for decades as we become more of a services-based economy, it is still a critical piece of the economic health of the country. A reading of 50 or better generally indicates that the overall economy is expanding along with the manufacturing sector.
The employment sub-index in the PMI rose from 52.3 in November to 54 in December--the strongest figure in nine months. Just as these numbers led to the Fed's decision to ease back on its $85 billion per month spending spree by $10 billion per month, they should also give business managers a higher level of confidence to begin spending some of the record corporate cash on hand. This, in turn, should lead to more employment opportunities for American workers. Plenty of cash on hand and increasing economic momentum equals a fine start to the new year.
U.S. Economy Gathers Steam
(05 Dec 13) The economy grew at a faster pace than previously reported for the third quarter of 2013. Gross domestic product (GDP), the broadest measure of goods and services produced in an economy, grew at a 3.6% annual rate for the months July through September, according to the Commerce Department. This is up from a second quarter 2.5% rate and better than economists expectations for a 3.2% figure.
Poring through the data, however, we find that the upward revision was due almost exclusively to businesses stockpiling inventory. Companies will do this for a number of reasons, from seasonal demand fluctuations (and expectations) to the price of raw materials and currency values....
(26 Oct 15) A couple of decades ago I worked at a regional brokerage firm based out of the Midwest. The company had a corny saying they encouraged us to use with our clients: “About every four years, Mr./Ms. Client, you are going to feel like throwing a brick through my window. When you do, just make sure there is a check tied to it!” The implied meaning of this message was that the economy goes through relatively predictable cycles of growth, peak, contraction, and trough, and that the typical cycle lasts about four years. For the markets, this meant that we could generally expect about one down year every four years or so.
The one-year timeframe between mid-2008 and mid-2009 was certainly one of those “brick” periods, brought on by the financial crisis. Since then, however, the markets have been pretty rosy. That is despite the fact that we did not have the accompanying economic growth trajectory one would expect. The US economy just sort of trudged along, with OK jobs numbers, mediocre GDP growth, and “meh” manufacturing production.
Another factor glaringly absent during this latest “growth” cycle has been rate hikes by the Fed. The target Fed funds rate has remained at zero. Chairman Yellen has emphasized that the Fed will be “data dependent” with respect to beginning the next rate hike cycle, and the data has, quite frankly, been lackluster. While the unemployment rate has dropped to 5.1%, one cannot overlook the fact that a record number of job-aged Americans are not being counted because they have simply dropped out of the labor force.
While two-thirds of US GDP growth is accounted for by the US consumer, one can also not discount the world economy’s role in our own rate of growth. One look at the accompanying chart, which reflects world GDP growth for the past five years, shows that a deep slowdown has been occurring—post financial crisis. The greatest way for the US economy to soar is for people and businesses residing outside of our shores to buy our goods and services. All of the trade deals in the world will not overcome a weak global economy.
(Reprinted from this coming Sunday’s Journal of Wealth & Success, Vol. 3, Issue 42.) (OK, got it. Take me back to the Penn Wealth Hub!)
The Unacceptable US Trade Deficit and its Enablers
Don’t believe what the politicians and America-bashers are telling you, a deficit is not the natural order of things.
Using the strong dollar as an excuse for our August imports outpacing our August exports by $48 billion would be like Apple telling analysts that nobody was buying iPhones because they are too expensive. The only problem with that comparison is that Apple is actually doing its job and selling products, not making excuses.
If it’s all about the strong dollar why, then, didn’t we run a trade surplus when the dollar was getting hammered by the euro for three years? No, if the US cannot compete globally because the US dollar is nearing parity to the euro, then the problem lies not in our currency, it lies in our government.
The same mental disorder (known as career politicianism) that said it was alright to spend $3 trillion per year, even though only $2 trillion was flowing in, now proclaims that a deficit is the natural order of things. So is China taking over the world, we suppose.
We guess that defeatist attitude is the reason the administration refuses to lift the ban on the export of crude oil and, for all intents and purposes, liquefied natural gas. (Sure, the DOE tells us they are preparing permits for the latter, but please pardon our skepticism, considering this is the same bunch that hasn’t allowed a nuclear facility or refinery to be built on US soil since the late ‘70s).
Unions tell us Wal-Mart buys too much from China. America-bashers (at home and abroad) tell us China is simply taking its inevitable crown as ruler of the known universe (along with their one aircraft carrier). Both of these groups will be proven wrong when true leadership returns to center stage. (Reprinted from the Journal of Wealth & Success, Vol. 3 Issue 38.) (OK, got it. Take me back to the Penn Wealth Hub!)
Turns out GDP Actually Rocked in Q2, but will it Hold?
(28 Aug 15) It doesn’t seem very long ago that we were being spooked by the initial Q1 read on the economy, which showed a contraction of 0.7%. Although revised up, economists were relatively dour on the first half of the year. Following the Chinese stock market meltdown, which bled over into our markets, investors got some good news, however, when the 2nd quarter GDP revision came in at a very respectable 3.7%.
Even more encouraging than the overall number, which represents a 60% increase from the initial 2.3% figure, are the internals of the report. Nearly every area of the economy, from business spending to housing to government spending (take that one with a grain of salt) saw a revision higher. Consumer spending rose, business investment grew 3.8%, housing was revised up to 7.8% growth, and government spending ramped up 1.8%.
If there was one concern with the revision it was the buildup of business inventories. Companies added an inventory of $12.1 billion of goods—$11.1 billion more than estimated. Perhaps they expected a more robust world market for their goods, but discovered a languishing China and an anemic Europe instead.
Regardless of the reasons for the buildup, this factor could weigh on Q3 growth; but consumers should find some nice clearance table deals!
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 35. Not a member? Click Here.)
(OK, got it. Take me back to the Penn Wealth Hub!)
GDP a Yawner, but at Least it is Positive
((30 Jul 15) The first look at second quarter GDP was released on Thursday, and it was “meh.” One bright spot was that the first quarter, which had already been revised up to a 0.2% contraction, actually went positive. If the first quarter were the year, we would end up with a GDP of 0.6% for 2015.
The second quarter came in at a 2.3% rate, which is less than had been expected, but not terribly bad. Actually, let’s back up: It is our opinion that anything below 4% is unacceptable; don’t let the talking heads tell you that the days of 4%+ growth are gone—it has to do with bad policy, not loss of American might.
Now, let’s pour some more cold water on the number. It appears that the government has been cooking the GDP stew for at least the past three to four years. They were caught, and Commerce department “revisions” were quietly released which show a weaker economy than reported over the last 12 quarters or so. Anyone surprised? According to the bald banshee, CNBC Chief Economist Steve Liesman, trying to accurately gauge the economy is “really, really, really, tough.” Maybe so, but it doesn’t help having political hacks massaging the numbers.
Were the recent numbers strong enough for Yellen to hold off on raising rates this year? Almost assuredly not. She has all but promised, barring any massive and dark unknown showing its face, the methodical rate hikes will begin in 2015. Hats off to her—she is sharp (certainly more so than Bernanke).
The sluggish numbers this year have been blamed on a strong dollar (yeah), consumers not spending as much (yeah—they are saving more), and reduced business investment (boo). Gas prices, which have been halved since last year, really didn’t spur much economic activity.
Let’s take a closer look at the second factor, consumer spending. The US consumer accounts for an overstuffed two-thirds of economic output. This is one reason economists lament a slowdown in consumer spending, even if that translates to “over-spending.” If we forced China, for example, to open its market to US goods the way we welcome Chinese goods, Americans could be responsible savers and the US economy could be chugging along at 5% per year.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 30.) (OK, got it. Take me back to the Penn Wealth Hub!)
Home Building Surges in April
(21 May 15) US new home construction surged 20% in April, the largest percentage increase since 1991 and the highest reading of new starts since 2007.
As the markets enter their “worst six months,” historically, of the year, the housing news helped quell investor fears that the markets have far outpaced true economic activity and are due a pullback.
But what of the great shift away from home ownership and to apartment and condominium living? While the April figures did show a healthy growth rate in the construction of single-family homes (up 16.7%), the rapid pace of multifamily dwellings continued, rising 27.2%.
Is this really bad news, however, or a sign that Americans are becoming more adept at living within their means? For the past two generations, the typical American worker has counted their home as a big part of their overall financial portfolio; perhaps the shift into multifamily dwellings will also mean a spike in retirement savings. Time will tell.
Certainly, low interest rates have had an effect on new home construction and overall real estate activity, which is one of the reasons the Fed has continued to keep rates at historically low levels. One year ago, the average 30-year mortgage rate was floating around 4.3%—good by nearly any measure. Today, however, that rate has fallen to 3.85%, enticing more American families to make the plunge.
When rates inevitably go up, economists worry that the number of new mortgage apps will fall precipitously, with a ripple effect being felt throughout the economy. That is one reason we do not see the Fed pulling the trigger on rate hikes until late this year or early next.
According to real estate firm Zillow, the median home value has risen 3% over the past year, to $178,400. The firm is projecting another 2% rise in values over the next 12 months.
(Read what percentage of the typical American worker’s salary is used to pay the monthly mortgage bill in this Sunday’s Journal of Wealth & Success, Vol. 3, Issue 21.) (OK, got it. Take me back to the Penn Wealth Hub!)
U.S. Balance of Trade is a Joke; at -$51.4 Billion in March
(Tu, 05 May 15) When oil was over $100 per barrel, and before the US became the new global energy king, it was somewhat understandable that the US trade deficit—the amount we import minus the amount we export—was so large; understandable, not acceptable. Now that the US is virtually energy independent, and oil is down 40%, there is absolutely no excuse for the kind of trade deficit the US recorded in March.
Here’s a look at the numbers reported Tuesday morning. The US imported, in March, $51.4 billion more in goods than we exported, amounting to the worst monthly figure since October, 2008—all the way back to one month before the 2008 elections. US exports did rise 0.7% in the month, but that paled in comparison to the 7.7% hike in imports.
So what was imported? Certainly not oil. Petroleum imports fell by $1.1 billion in the month, but non-petroleum imports rose by an almost unfathomable $17.5 billion (keep in mind, that figure is for one month). The end of the West Coast ports strike was cited as one reason for the ugly number—yes, there were a lot of ships that could not get out, but a multiple of that number could not get in. What does this mean for the already lousy first quarter GDP figure? It will certainly be revised down from its initial +0.2% read. In fact, Q1 GDP is now tracking down 50 basis points, to -0.3%, and Q2 is already being projected down 30 basis points from previous estimates, to +2.7%. That does not portend a strong 2015 US economy.
So what’s the upshot? First, hopefully it will spur the politicians to ease-up on onerous corporate tax rates which encourage US companies to produce more overseas than at home (keeping the cash overseas). Secondly, it will probably postpone those pesky rate hikes which are undoubtedly on their way.
(Reprinted from next Sunday's Journal of Wealth & Success, Vol. 3, Issue 19.) (OK, got it. Take me back to the Penn Wealth Hub!)
U.S. Trade Deficit Falls to Four-Year Low
(08 Jan 14) The figures are out on the U.S. trade deficit for November, and the news is good. The nation's trade deficit dropped from nearly $40 billion in October to a seasonally adjusted $34.3 billion in November on the back of increased American energy production, which reduced the amount of oil imports in the month. This is the lowest the trade deficit has been since October of 2009.
The one-two punch of increased exports and reduced oil imports adds fuel to stories of an improving economic environment in the U.S. Before the trade report was released, economists had been predicting a final GDP growth rate of 2.3% for 2013, but many raised their projections to 3% following the report. It has been awhile since the U.S. has been chugging along at the old norm of 3% to 4% growth per year, leading the naysayers to call lower growth the new norm. Another part of the equation is the slowing growth in China, which has seen "typical" growth rates of 7% over the past several years. Internal challenges are putting pressure on Chinese growth numbers, which bodes well for U.S. manufacturers.
Without a doubt, the big story for U.S. growth has been the energy renaissance in the country. Increased domestic energy production not only strengthens the U.S. hand against thugs like Putin and his allies in Venezuela and (now) Brazil, it also reduces the importance of the Organization of the Petroleum Exporting Countries, or OPEC. To crystallize how important U.S. energy production is to the health of the economy, consider this: while we are celebrating a $34 billion trade deficit in November, the U.S. still imported $28.5 billion of foreign petroleum over that 30-day period--the lowest level in three years.
U.S. Manufacturing Growth Hits 11-Month High
(2014.01.02) U.S. manufacturing appears to be getting its stride back, according to data released by the Institute for Supply Management (ISM). The ISM's Purchasing Managers' Index (PMI), which gauges manufacturing levels in the U.S., maintained a level of 57.0 in the last month of the year, beating expectations. Any reading above 50 means that expansion is taking place in an economy.
The PMI is a composite index composed of five sub-indicators: production levels, new orders, supplier deliveries, inventories, and the level of employment. Purchasing managers respond to questions in each of these five areas, with the resulting answers being calculated in the PMI index--a figure between 0 and 100. While manufacturing has been on the decline in the U.S. for decades as we become more of a services-based economy, it is still a critical piece of the economic health of the country. A reading of 50 or better generally indicates that the overall economy is expanding along with the manufacturing sector.
The employment sub-index in the PMI rose from 52.3 in November to 54 in December--the strongest figure in nine months. Just as these numbers led to the Fed's decision to ease back on its $85 billion per month spending spree by $10 billion per month, they should also give business managers a higher level of confidence to begin spending some of the record corporate cash on hand. This, in turn, should lead to more employment opportunities for American workers. Plenty of cash on hand and increasing economic momentum equals a fine start to the new year.
U.S. Economy Gathers Steam
(05 Dec 13) The economy grew at a faster pace than previously reported for the third quarter of 2013. Gross domestic product (GDP), the broadest measure of goods and services produced in an economy, grew at a 3.6% annual rate for the months July through September, according to the Commerce Department. This is up from a second quarter 2.5% rate and better than economists expectations for a 3.2% figure.
Poring through the data, however, we find that the upward revision was due almost exclusively to businesses stockpiling inventory. Companies will do this for a number of reasons, from seasonal demand fluctuations (and expectations) to the price of raw materials and currency values....