How Safe is the United States from an Economic Collapse in 2016?
An economic crisis, in part triggered by the slowing in China, is worrying the Federal Reserve. While this may push an interest rate hike until December or even March if the economy and inflation fails to gain any serious traction, the fact that we are seeing a pause in the global economy is worrisome as it will impact our growth.
The Q2 gross domestic product (GDP), at an annualized 3.9%, looked pretty darn good. Unfortunately, it’s a mirage. The Fed knows that and cut its GDP target to only 1.8% this year. The OECD believes the U.S. economy will expand at a sub-two percent clip in 2016. If the Fed and OECD are near the mark, this would likely translate into continued weakness in corporate America and the stock market.
If you think the jobs market is healthy, think again. In fact, despite the growth of jobs in 2015, the monthly average of 198,000 this year is well off from the 260,000 average in 2014. The government may talk about how jobs are being created, but the fact is this year-over-year decline is not necessarily encouraging for the 11 million or so job seekers or the many millions who are working only part time or underemployed.
The jobs report just released by the Labor Department was simply not promising. A mere 142,000 jobs were created in September, which was well below the 203,000 estimate. Even worse yet was the fact the July and August jobs numbers will be reduced.
Some job market pundits were calling for an upward revision in the August jobs but the fact only 136,000 jobs were generated versus the initial 173,000 head count is disastrous for all of the millions hoping for better times ahead.
Why China Could Spark an Economic Collapse in 2016
Maybe it’s the overseas impact from China. Despite that, some in the media say China is a non-factor and America will continue to reign as the world’s most dominant economy.
China is seeing its once busy plants operating at well below capacity. Heck, there may be no jobs to take back across the Pacific.
And like Chinese plants, U.S. factories are also feeling the cold as 9,000 jobs were lost in September, adding to the 18,000 that disappeared in August. (Source: Labor Department, last accessed October 2, 2015).
In addition, we are seeing a decline in the labor force participation rate, which means some have left the jobs market unable to find work.
What I sense from all of this is that despair continues for many in lower and middle America. That’s why Mr. Trump who promises to bring back the jobs from all around the world is popular with the masses. I simply don’t think it will be that easy. But it’s worth a try.
The big concern going forward will be the failure of companies to grow jobs at a faster clip or jobs that are actually deemed worthy by higher education workers who are forced to work at menial service jobs waiting for an opportunity.
If the estimates from FactSet are correct, the pain is being felt in corporate America where the Q3 earnings are predicted to contract 4.5% on sales decline of 3.3%. (Source: FactSet, last accessed October 2, 2015.)
The bottom line: it could get worse before it gets better.