Another quarter, another three months where gangbuster
growth remains AWOL.
That’s what I thought when I looked at this morning’s GDP
report. It showed the economy grew 2.3% in the most recent quarter. While that
was an improvement from the first quarter’s revised 0.6% rate of growth, it
missed forecasts for around 2.5%.
Not only that, but annual benchmark revisions show the
economy has been growing less than expected ever since the Great Recession.
Annualized growth between 2011 and 2014 was revised down to 2.1% from 2.4%. It
also turns out 2013 was the worst year since the recessionary slump in 2009.
Consumer spending has been one relative bright spot – with
growth of 2.9% in the second quarter. But business spending stunk up the joint,
with ex-housing investment falling by 0.6%. That was the worst since 2012.
Federal government spending also dropped 1.1%, restraining growth, while
inventories basically remained flat. Consumer spending was one of the bright
spots in the U.S. economy.
These aren’t the kinds of figures we got used to in the
1990s, or even the early 2000s. They underscore how weakness in overseas
economies, the stronger dollar, and the drop in oil prices are all working to
hold the U.S. back.
That’s why I believe the Federal Reserve will have to get
more aggressive in the global currency war, even as it lays the groundwork to
normalize interest rates. Yesterday’s post-Fed statement acknowledged the
international and dollar-related problems, for instance, even as it sounded
sanguine about the job market’s progress.
What does all this mean for investors like you? Increased
caution is warranted. We don’t have all the world’s economic horses pulling
together any more, nor do we have all the globe’s central bankers on the same
page. That means we’re facing more “Bloody Wednesday” risk now than we have at
any point since the last recession. I hope you’re prepared, and I’ll do my best
to make sure you are.
Now, let me know what you think of the latest GDP results.
Is the U.S. economy on the right or wrong track? Why can’t we get 1990s-style
growth several years after the official end of the last recession?
Moreover, what can be done about it in Washington or
elsewhere – if anything? And how should you modify your portfolio strategy to
reflect the lack of gangbuster growth? Share your opinions at the Money
and Markets website.
Our Readers Speak
Interest rates and Iran – they were the latest topics to
grab your attention and spark fresh comments.
Reader Cliff E. weighed in on the Federal Reserve, saying
“Our interest on debt is $450 billion-plus, and every basis point rise is more
costly. Yellen is not going to raise interest rates until the market
speculators and buyers of Treasuries force her hand. “When the banking
interests and monopolies gain control of a nation’s currency and production,
there is hell to pay. There is no good end.”
Reader Phil added that “Yellen is supporting the current
administration, basically saying all is well. Wait ’til things start rolling
and Yellen will be ‘yell-in’.”
Reader Carl said: “I expect the Fed will work feverishly
with other U.S. financial agencies to prop up the economy (on paper) until the
end of the current Presidential term. The ugly mess will blow up on the next
President.”
Meanwhile, with regards to the Middle East, Reader Frebon
said: “This agreement with Iran only serves to show what feckless politicians
always do — kick the can down the road. It allows Iran to be a nuclear power
and to build a bomb, but let our children and grandchildren worry about that.
However, we will now finance Iran’s true ambition, to build a Shia caliphate
with the $150 billion we will give them.”
There’s a lot to dislike about the Iran deal for sure, but
the only way it fails is if Congress votes it down and then overrides an Obama
veto. We’ll see what happens in the next couple of months.
As for the Fed, the markets, and the economy, things
definitely look shakier now than they have in a long time. I’ve shared some
thoughts on that in my last several Money and Markets columns. I’ll have much
more in this month’s Safe Money Report, which goes to press next week.
Other Developments of the Day
The carnage in “Big Oil” continues, with Royal Dutch Shell
(RDS) becoming the latest global giant to slash jobs, cut spending, and
otherwise react to low petroleum prices. The company is cutting 6,500 jobs, and
starting very few new projects. That’s just another brick in the wall that will
ultimately reduce the supply glut in oil and send prices higher over time. Mike
Larson
Market Roundup Dow-5.41
to 17,745.98 S&P+0.06 to
2,108.63 NASDAQ+17.05 to 5,128.78 10-YR
Yield-0.011 to 2.268% Gold-$5.20 to
$1,087.40 Oil-$0.32 to $48.47
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Money and Markets A Division of Weiss Research, Inc.
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