Quarterly Comments

Economic & Market Comments: Third Quarter 2014

in Quarterly Comments

An economist’s guess is likely to be as good as anybody else’s ~ Will Rogers Economist’s projections have run into a bad patch, at least in the short-term.  Most had first quarter GDP declining one percent due to January’s frigid weather.  It came in with an annual rate of minus 2.9%.  The stock market paid little attention, and bond interest rates actually declined giving twenty year Treasury bond holders a better first half than common stocks.  The lack of concern over the GDP surprise was reasonable given that most of the weakness stemmed from one-off factors.  The drop was concentrated in January, which declined at an annual rate of 5%, the implementation of the Affordable Care Act caused health care spending to decline, and inventories were reduced to low levels.  First quarter automobile inventories went from 120 days to 60 days.  Jobs, consumer confidence, service-sector activity, and business investment were positive, and make an imminent recession unlikely. The second surprise to economists was the monthly job report showing net job gains of 288,000 when expectations were in the area of 200,000.  There were also small upward revisions to the two previous month figures.  Also positive, albeit of more political relevance than economic, the...

Economic & Market Comments: Second Quarter 2014

in Quarterly Comments

When facts change, I change my mind. What do you do? – John Maynard Keynes Perhaps a corollary of Keynes comment would be to not change your mind when the facts don’t change. The stock market certainly didn’t change much either way in the first quarter, and the economic outlook likewise showed little change. Severe weather in the first quarter obviously had some negative impact, but in most cases this will have postponed some activity, not eliminated it. The trends for homebuilding, retail sales, and industrial production all exhibit starts and stops which make projections less reliable, but in general those trends are up, but at very modest rates. Overall, the recovery seems to be continuing to grow at a very modest pace, perhaps GDP growth of 2.4% this year; a bit better than last year, but not really any signs of acceleration. Not great, but probably the best among developed economies. Europe’s austerity is producing weaker growth than the U.S., but has lessened the risks of default. Job growth is lackluster, but consistently positive. This recovery is becoming one of the longest ones in recent history, but slow growth likely means that the expansion has not used up all its fuel, and has...