Is the US Economy Sinking Into Oblivion?

image 900x389 Is the US Economy Sinking Into Oblivion?

Is the US Economy on a Sinking Ship In the Middle of a Bubble Over Rough Waters?

Everything from an inflationary standpoint in the US is trending down, all except the U.S. Dollar. Is the US Economy much better off economically than the Rest of the World? Are Chris Kimble’s Charts, posted at Advisor Perspectives telling us the whole story? Apparently not, since the GDPNow 3Q2014 forecast from the Atlanta Fed increased again to 3.5% based on Personal Income growth of 0.3% in August.

According to these Charts, deflation is a serious cause for concern, along with the Fed’s monetary policies of zero-interest and the end of the QE/Buyback programs. Is the US Economy heating up without inflationary pressures? I don’t believe so.

My bet is on Goverment Spending programs to keep things going after the Mid-Term elections in November. State and Federal spending now only account for 18.3% of GDP, far below the average 20% over the last 30 years. Unfortunately, US Debt pressures are still over 100% of GDP and the War against terrorism continues in the Middle East.

The end of QE and the U.S. Mid-Term elections are just around the corner. It will take a successful Holiday Season for retailers to keep US GDP growth above or at 3%. New government programs won’t kick in until 2015. In any event, it will be interesting to see how things play out, especially in the US Stock Markets, which are still close to all-time highs.

The Big 4 LEI Continues Its Growth Trend in 2014

image12 300x267 The Big 4 LEI Continues Its Growth Trend in 2014

The Big 4 Leading Economic Indicators Continue with positive growth with only IP down since Jan’14

For a more detailed analysis with excellent charts, please visit Doug Short’s most recent post at Advisor Perspectives.

us-economy-exposed-debt-crisis

Tweet Peeks at 3Q2014 GDP for W/E 09-26-2014

@KeithEOuellette: After a reasonably active week of key economic data, the news was more positive than negative (5 to 3) and our overall rating is leaning towards positive so far in 3Q2014. We completed a 6-Month Comparison of period ending 4Q2013 and 2Q2014, which recorded GDP growth at 2.7% and 1.5% respectively. This past week, the Final Estimate of 2Q2014 GDP came in at 4.6% growth after a contraction of 2.1% in 1Q2014. Our current forecast of 3% growth for the balance of the year should bring in a 2.25% growth rate for the Year 2014.

We plan to update our Mind Map sometime next weekend, complete with current economic indicators updated through August, if available. The key is to align the economic news items with the weighted average to determine their impact on GDP. We have done just that in estimating GDP growth, utilizing our simple rating model.
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For an explanation of the ratings, please refer to the post describing the Rating System.
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FINAL SUMMARY OF 3Q2014 RATINGS
POSITIVE = 29
NEUTRAL = 19
NEGATIVE = 21
As of September 26, 2014
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  • The Philly Fed Business Outlook continues its growth trend since early 2014. http://t.co/Ue0lZZ4pZA
    RATING = 2
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  • Inflation trends suggest that the Commodities Index are hitting new lows. Are the Feds policies deflationary? http://t.co/pyceW8vKYw
    RATING = 1
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  • The Business Cyle Index (BCI) illustrates that no recession is in sight. http://t.co/WbfpMxi9rQ
    RATING = 2
  • ***************

  • The Chicago Fed’s National Activity Index (CFNAI) decelerated in August 2014. http://t.co/ETproxRtdL
    RATING = <2>
  • ***************

  • Existing Home Sales are soft in August 2014 and it appears that Cash Investors are drying up. http://t.co/0jVwhIHn6o
    RATING = <2>
  • ***************

  • NFIB’s Small Business Confidence Index improves to 96.1, the 2nd highest reading since Oct’2007. http://t.co/XvAHZAUABL
    RATING = 2
  • ***************

  • The Richmond Fed’s Manufacturing Composite indicates continued growth at moderate pace in Sept’14. http://t.co/TbmaXEFnUK
    RATING = 2
  • ***************

  • August’s Durable Goods Oders 18% contraction is a direct result of last month’s Aircraft anomaly. http://t.co/wuTKl9ntRQ
    RATING = <2>
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  • Another take on the rise of the U.S. Dollar and fall of Gold prices illustrates a sideward trend. http://t.co/DBbIWr0mNQ
    RATING = 1
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  • Final Estimate of 2Q2014 GDP comes in at 4.6%, an increase of almost 1/2% from 2nd Estimate. http://t.co/lZn770Jlvu
    RATING = 2
  • ***************
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6-Month GDP Comparison of Periods Ending 4Q2013 to 2Q2014

image8 300x181 6 Month GDP Comparison of Periods Ending 4Q2013 to 2Q2014

Comparison of 6-Month Change in GDP @ 4Q2013 and 2Q2014

Because of the distorted Quarterly Change in 2Q2014 GDP after a 2% contraction in 1Q2014, we decided to take a look at the change from the last 6-months in 2013 to the first 6-months in 2014. Although the weather-related impact of 1Q2014 will affect the current period’s results, it is not as dramatic of a change during the extended period. However, the seasonal impact is clearly evident with a robust 2.7% growth in the last half of 2013. Or, was it really for that reason. The 1st Half of 2014 ended up at a 1.5% growth rate, a significant drop.

We are estimating 3% GDP growth for the rest of the year, so, if we continue on the latest trend line, we should attain a 2.25% annual GDP growth rate for 2014. It remains at its low growth trend of the last few years, but it is still an improvement over the 1.9% annual GDP growth rate attained in 2013.

Let’s now look at the change in GDP by major component. Consumption contributed 1.3% during the 6-Months ended 2Q2014 GDP versus 1.4% for the 6-Months ended 4Q2013 GDP.

image9 300x209 6 Month GDP Comparison of Periods Ending 4Q2013 to 2Q2014

Consumer Consumption Slightly Down but remains Consistent contributing 1.3% to 2Q2014 GDP

The Automobile Sector continues to lead the Durable Goods sub-component of Consumption. However, the major impact on GDP over the last few Quarters has been Gross Private Domestic Investment (GPDI). But clearly, growth has slowed in Fixed Investments from 6% to 3 1/2% or so as illustrated below.

image10 300x207 6 Month GDP Comparison of Periods Ending 4Q2013 to 2Q2014

Comparison of 6-Month Quarters Ending 12-31-2013 and 06-30-2014

Fortunately, the 2Q2014 increase in Private Commercial Investment (Aircraft) and the Change in Inventories saved the 1st Half of 2014 averting a potential disaster. Still, GPDI contributed 0.6% of the change in 6-month period ending 2Q2014 GDP, as compared to 0.9% in the last half of 2013. Slower growth is clearly evident in this major category of GDP.

Rounding out the other major components are Government Spending, which contributed 0.1% to GDP in this comparison, but it still accounts for 18.3% of GDP (low compared to the historical 20% of GDP). Net Exports traditionally impacts GDP by a <3%>, but this time impacted GDP by only <0.6%> in the 6-month period ending 06-30-2014.

image11 300x209 6 Month GDP Comparison of Periods Ending 4Q2013 to 2Q2014

Exports improves over Imports in 2Q2014

The major swing in Net Exports was a reduction of the Trade Deficit in the 6-month period ending 12-31-2013, which contributed 0.4% to GDP, a negative <1%> swing in the current period. It will be interesting to see if the U.S. can hold a 3% GDP growth rate during the balance of 2014.

us-economy-exposed-debt-crisis

Tweet Peeks at 3Q2014 GDP for W/E 09-19-2014

@KeithEOuellette: After another light week of key economic data, the news was more positive than negative (4 to 2) and our overall rating is leaning towards positive so far in 3Q2014. This week, the Final Estimate of 2Q2014 GDP is announced, so we plan to update our Mind Map. The key is to align the economic news items with the weighted average to determine their impact on GDP. We have done just that in estimating GDP growth, utilizing our simple rating model.
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For an explanation of the ratings, please refer to the post describing the Rating System.
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strong>
FINAL SUMMARY OF 3Q2014 RATINGS

POSITIVE = 24
NEUTRAL = 17
NEGATIVE = 18
As of September 19, 2014
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  • Has the ECRI’s Index lost its credibility? The Feds monetary policy has moved the recession out years, but will end! http://t.co/rcBGBTfBdm
    NO RATING FOR OPINIONS
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  • August’2014 Industrial Production (IP) Contracts 0.1% http://t.co/Y0RLkXKeUj
    RATING = <2>
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  • Sept Michigan Consumer Sentiment beats expectations & hits 84.6, well above 80pt level indicative of recession point. http://t.co/OznIh9BNqW
    RATING = 2
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  • Real Median Household Income has only increased 0.46% annually since 1967. Check out D. Short’s Deflator analysis. http://t.co/MPZuPeUtx7
    RATING = <2>
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  • August 2014 US Producer Price Index came in unchanged after only increasing only 0.1% in July; no demand in sight! http://t.co/xAhijyVEGE
    RATING = 1
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  • August CPI (or derivative) inflation is no problem! Only food prices are a concern especially for Mainstream America. http://t.co/fyhweIlrn1
    RATING = 2
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  • New unemployment claims come in at 280,000, well below expectations. Expect another downward tick for UE Rate. http://t.co/D1GqiUVole
    RATING = 2
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  • The US Dollar’s rise against other foreign currencies since May’2014 has made its move. Will it be short-lived? http://t.co/Qf4BPYZGGx
    RATING = 2
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