Reading the Economic Tea Leaves
Despite the recent ‘better than expected’ revised US GDP figures, the growth rate is still paltry as we work through the energy, materials and related industrials adjustments.
Let's take a deeper look with data provided by Dr. Ed Yardeni and his team.
Reading the Economic Tea Leaves
The currents haven’t changed much for the economy:
- Real GDP is still growing around 2.0%-2.5%, and should continue to do so this year and next year.
- Consumers will probably do what they do best, while the capital-spending outlook is likely to remain relatively subdued and mixed, with pockets of strength and weakness.
- Housing remains constructive.
- Inventories are a bit bloated.
- The profits cycle has turned down but is fundamentally masked by the energy price collapse as covered for months. It should turn back up soon, though modestly so, as the earnings reports begin to "lap" the beginning of the real pressures in profits for the sector. We stand by the idea this is done by the start of Q3 reports. Hence, a summer swoon should be very advantageous for long-term investors.
There is some good news:
- Fiscal spending is no longer a drag, but trade continues to weigh on the economy.
- National income shares show workers finally gaining some of it, while corporations lose some of it.
- Inflation remains subdued (but as we have covered, don't be surprised if it picks up a bit soon.)
The Bigger Picture
In the past, when data seems to shift from week to week, I have found it has been more productive to ask different questions.
Taking a different perspective from the mass media may produce better results as this tends to cause you to ponder things many others are not yet focused upon.