We learned on Friday that U.S. GDP grew just 1.2% in the second quarter. That was less than half the average forecast of Wall Street “experts.” Not only that, but Q1 GDP growth was revised down to 0.8% from 1.1%.
Private fixed investment plunged at a 3.2% rate, the worst drop in seven years. Companies slashed inventories the most since 2011. Residential investment fell 6.1%, the most since 2010, while government spending dropped 0.9%, the most since 2014.
All told, our economy has grown at an average annual rate of only 2.1% since the Great Recession. That’s the worst for ANY U.S. “expansion” in the post-World War II era.
Things would have been even worse if it weren’t for relatively healthy activity in the construction sector. The industry was a key source of strength from 2009 through 2015, thanks to low interest rates and an explosion in easy lending for real estate acquisition, construction, and development.
But we learned today that construction spending tanked 0.6% in June. That was much worse than the 0.6% increase that economists expected. It also followed a 0.1% decline in May and a 2.9% plunge in April.
We haven’t seen spending fall three months in a row since the period from November 2012 to January 2013. At the same time, construction employment has dropped or stagnated for three straight months. That hasn’t happened in four years. Throw in the fact the ISM manufacturing index dipped to 52.6 in July from 53.2 in June, and you can see why I continue to maintain we’re in a pre-recessionary environment.
|A relatively cautious stance is warranted.|
It remains to be seen if hopes for more central bank funny money or fiscal stimulus can win out in the battle against lousy data. But stocks have generally been treading water since the big move in July, while economically sensitive commodities like crude oil are tumbling again. So I think a relatively cautious stance is warranted.
Of course, I’d love to hear your take, too. Should we be worried about the U.S. economy … or sanguine? Will the stock market ultimately “care” about numbers like these, or is it all about central bank action at this point? What kinds of companies are you looking to buy or sell here, and why? Hit up the comment section to share your thoughts.
Until next time,
Bargain-basement interest rates, the investment prospects of gold, and out-of-control bankers: These are just a few topics you’ve been discussing online recently.
Reader Justin weighed in on interest rates, saying: “These ultra-low interest rates are doing massive structural damage to our economy by suppressing the multiplier effect. Money isn’t ‘working’ anymore. Instead, it is going toward risky speculation. It is wealth destruction without a crash.
“Japan adopted these policies decades ago, and it hasn’t gotten them out of their economic rut. There is overwhelming evidence that these policies are not working, or are doing damage, yet the central bankers insist on continuing them. I predict that someday, somebody will win a Nobel Prize for Economics by proving how it isn’t working in mathematical terms. Until then, what a mess we’re in!”
Reader David W. shared this observation on what low rates are doing to pensions: “The total shortfall in defined benefit pensions is so large that contributions cannot make up the difference. Beneficiaries are so many and so well-protected by state constitutions and organizations that it’s virtually impossible to make any meaningful reductions in promised benefits.
“Our only hope is exceptional growth in the economy. We must dump every rule and growth-constricting regulation now.”
Reader Gene added: “There is no excuse for the policies of the Federal Reserve since 2007. I see their massive money printing and next-to-zero interest rates as a case of stupidity. Plain and simple. You can also see it as a case of taking care of the large government debt at the expense of the little savers who worked for years to accumulate savings only to be disappointed with low rates.”
With regards to bank executives and all the recent settlements and charges of wrongdoing, Reader Chuck B. said: “When will American bankers start serving prison terms for their transgressions against customers, and, more importantly, paying back some of what they took from those customers?”
And on the topic of gold, Reader Robert C. said: “I am a firm believer that we, as well as the rest of the world, should return to the gold standard. Since the Fed opened for business, we have lost over 90% of our purchasing power. Inflation on a cumulative basis over 102 years has gone up by 2,200%.
“The floating-rate fiat system is the root of all evil, because governments continue to devalue. It is the working poor and middle class that suffer the most. Throughout history, when governments refuse to address their structural problems, they take the easy way out and devalue. The gold standard would force all governments in the world to live within their means.”
Thank you for sharing your thoughts in these volatile times. And if you haven’t already weighed in, be sure to take advantage of the comment section below.
The Initial Public Offering (IPO) business just isn’t what it used to be, what with 2016 likely to be the slowest year since 2009. Only 55 U.S. IPOs have gotten out of the gate, compared with 121 in 2015 and 180 in 2014, per Dealogic. Total dollars raised are down a whopping 70% from 2014.
Uber is giving up on its expansionary ambitions in China, agreeing to sell its Chinese business to competitor Didi Chuxing. It had been spending tens of millions of dollars each month to compete there, and investors reportedly pressured the company to stem the bleeding and focus its efforts elsewhere.
Russia lost an Mi-8 transport helicopter to enemy fire in Syria, raising that country’s death toll to 18. The country is backing embattled Syrian leader Bashar al-Assad with weapons, air support, and other aid in his fight with various rebel groups.
The major telecom companies are increasingly looking to new businesses to generate sales and earnings growth. AT&T (T) bought DirecTV a few quarters ago to broaden its business, and Verizon Communications (VZ) just said it would buy Fleetmatics Group (FLTX) for $2.4 billion. The deal will add Fleetmatics’ vehicle-tracking operations to the mix. Verizon also recently agreed to buy web assets from Yahoo! (YHOO) for $4.8 billion.
What do you think of Uber’s capitulatory move in China? The collapse in IPO volume? Or the latest moves by telecom giants AT&T and Verizon? Let me know here at the website when you have a minute.
Until next time,