Add your favorite slow-growing-US-economy headline here. Photo by Masashi Hara/Getty Images Sport.
Have you heard? US economic growth is sluggish, slow, moribund, lackluster, tepid, weak, meager, sloth-like(?), or any other adjective meaning slow by historical standards. I'm betting you have, since this has pretty much universally been the media take on growth since the recession ended in 2009. And for most of this expansion, that story has been accurate. The present expansion, judged by headline GDP, is the slowest on record. But in the last four quarters, this story has changed some-and the media hasn't much taken notice, another point illustrating a bullish disconnect between sentiment and reality.
Since quarterly data begin in 1947, US GDP has averaged 3.3% seasonally adjusted annual growth. The last four quarters are 4.5%, 3.5%, -2.1% and 4.2%.[i] That's three above-average quarters, and the one negative seems clearly a weather-driven anomaly, given the growth resumption in Q2.
This isn't a way of saying "Woo-hoo! The US economy has reached escape velocity and will clearly lift off from here!" because that's all just jargon implying past economic growth influences future direction-GDP is backward-looking, and it isn't serially correlated anyway. What's more, stocks don't even need fast growth to rise significantly-Exhibit A is the present bull, up more than 200% from its low amid overall slow GDP growth. Stocks look forward, and GDP reflects the past. Also, GDP isn't a perfect reflection of the private sector. It tallies rising government spending as a permanent economic positive and imports are considered a negative. Go tell that one to Walmart.[ii] I am not going to go on a deep data dive here, but rather, provide you examples of stories penned as this shift evolved to illustrate how some pundits seem set on a theme-the sluggish economy!-and stuck to the tale without noticing the economy wasn't sluggish.[iii] (This format will be similar to how we analyze media takes daily in our news roundup.) I've left most of these free of my commentary, as I think the words speak for themselves. But in a few places I've highlighted some noteworthy things in italics or boldface.
"The economy keeps underperforming. Yes, new G.D.P. data last week were better than expected. But the United States is still producing around $800 billion a year less in goods and services than it would if the economy were at full health, and as a result millions of people aren't working who would be if conditions were better."
"Capital spending by U.S. companies has been hampered by 'a traumatized economy' and will require more time to rebound...." Oh yeah? Nonresidential fixed investment by US firms has grown at an average 6.5% clip in the last four quarters, adding 0.67, 1.23, 0.20 and 1.03 percentage points to growth, respectively.[iv]
"A pair of Commerce Department reports this week showed that consumer spending is recovering from a weak first quarter more slowly than economists expected, and some are worrying that slowdown in a sector accounting for 70 percent of the U.S. economy could foreshadow slower economic growth on the whole." While consumer spending does account for 70% of US GDP growth, it isn't really a swing factor-it's very stable compared to factors like business investment.
"We believe that the first print of GDP data is of little use in tracking the economy and, therefore, we cannot get too excited by the 4.0% increase in real GDP, which must, in any event, be balanced against the 2.1% contraction in the first quarter. Therefore, growth over the first half of the year is recorded at only 0.9% (the slowest since the first half of 2011)." Boldface mine.
"Recessions are always painful, but the Great Recession that ran from late 2007 to the middle of 2009 may have inflicted a new kind of pain: an era of slower growth." Maybe you would prefer this version?
"But this recovery has a way of moving out of reach just when we think we're getting close. The International Monetary Fund and the Federal Reserve have already pushed back their forecasts for liftoff from the grinding economy to next year. The new reading of first quarter GDP could move the ball even farther. A 3 percent annual growth rate is starting to seem like the promise made by the White Queen in 'Alice in Wonderland': Jam tomorrow and jam yesterday, but never jam today."
The alleged insanity is the fact stocks went up the day the Fed announced the first taper. "In the end, a combination of less monetary-policy accommodation, the prospect of pinched margins, and a looming debt-ceiling fight in February are all concerns investors will slowly awaken to."
"The government shutdown that ended this week will cost the United States economy several billion dollars, according to estimates by economic research firms. But the affiliated damage - like the undermining of consumer and business confidence - will be far greater, economists said, especially combined with the financial effects of the near-breach of the country's statutory debt ceiling."
"The U.S. economy expanded more in the third quarter than initially estimated as unsold merchandise piled up at the fastest rate since early 1998, setting the stage for a possible slowdown in the final three months of the year." Boldface mine.
"There's no momentum here. Inventory accumulation was revised up from $86.0B to $116.5B, more than double the Q2 pace and unsustainable. Inventories will be a drag on Q4, and with no signs of a real improvement in final demand, so far, GDP growth is heading for a sub-2% reading. Inventories aside, consumption was revised down a tenth to 1.4%, fixed investment was lifted to 5.4% from 4.1%, and foreign trade was revised down in line with monthly data."
Now, I get it. There are other, rosier takes. And while Q1 seems like an anomaly, some of Q2's growth is likely due to a push back effect from Q1. But those takes are easy to find in the media. If euphoria were really here, my guess is it would have taken me far longer to track down naysayers and negative nellies. If economics is the dismal science, economic journalism seems currently to be a dismal art.
[i] Source: US Bureau of Economic Analysis, US Real GDP at Seasonally Adjusted Annual Rates, Q2 1947 - Q2 2014. That is the whole quarterly data series the BEA publishes, for the record. The last figure is subject to revision. In fact, they all are. GDP figures are regularly revised years after the fact, like they just were to include intellectual property and R&D.
[ii] Two things here: One, this is not a recommendation to take any investment-related action on securities attached to Walmart. Two, I am citing Walmart exclusively because it is a large, well-known retailer that sells a lot of imported stuff. I am not opining on the debate over whether Walmart is good or bad for communities, whether it pays its workers enough, or any other aspect of this company's business or business model. I guess I could have selected another retailer, but it would probably be less clear to say, "Go tell that to Fred Meyer!" which my fellow Pacific Northwest residents would get, but everyone else less so. It also could be confused with me saying to tell some guy named Fred Meyer, which could be very weird for guys named Fred Meyer. And I wouldn't get to type this fun footnote!
[iii] Maybe some folks figure above average can still be sluggish, but that certainly seems an odd argument to me.
[iv] Source: US Bureau of Economic Analysis.
[v] Confidence is one of those things often theorized to be negatively impacted when an actual negative impact cannot be seen. And hey, maybe it's true occasionally.
[vi] This is actually true, as GDP is inherently backward-looking and non-serially correlated. But citing what is always true as a reason for skepticism is a sign of sentiment.
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