President Obama is trying to talk up America’s economic recovery. If you need more proof the U.S. economy is in bad shape, check out the latest numbers from the U.S. Department of Commerce.
The biggest economy in the world threw up some pretty weak numbers in the fourth quarter. According to the report, U.S. gross domestic product (GDP) grew at a 0.7% seasonally adjusted annualized rate in the fourth quarter. The number couldn’t even match the Street’s already low estimates. (Source: “Gross Domestic Product: Fourth Quarter and Annual 2015 (Advance Estimate),” Bureau of Economic Analysis, January 29, 2016.)
Wall Street celebrated the bad news the only way it knows how—by sending the markets higher. By midday Friday, the bedraggled S&P 500 was up almost two percent. The Dow Jones Industrial Average was up around 1.5%.
Analysts hope this report will give the Fed a reason to hold off on raising interest rates. This gives investors more time to borrow cheap money and pour it into the flagging stock market.
And the weak U.S. economic data should cause the Federal Reserve some concern. After donating $3.5 trillion to Wall Street in the form of quantitative easing, the U.S. economy hasn’t really been bullish.
In the second quarter, GDP increased 3.9%. In the third, the U.S. economy grew two percent. As I’ve noted before, we generally like to see those numbers increase over time, not decrease.
For the full year, GDP grew at 2.4%, the same rate as in 2014 and a little better than the 2.1% average since 2010, the first full year after the recession ended. (Source: “GDP Growth Annual,” World Bank web site, last accessed January 29, 2016.)
Looking back, quantitative easing was supposed to help kickstart the economy. But as you can see, it didn’t. At best, the $3.5 trillion helped keep the GDP status quo. At worst, it increased inequality between the top one percent and the bottom 99%.
The U.S. Economy: The Good, the Bad, and the Ugly
Bulls will point to the strong jobs market. The housing market is improving. Auto sales were strong in 2015.
Sure, but falling oil prices and a strong U.S. dollar have not been kind to U.S. stocks. Coupled with weakness out of global markets, the picture doesn’t look too good.
At the same time, in spite of weak fourth-quarter GDP data, full-year consumer spending grew 3.1%—the fastest pace in a decade. That sounds good on the surface, but with stagnant wages, one has to wonder where the spending power is coming from?
Could it be a result of household debt rising to the highest levels since 2010? You can’t support the world’s biggest economy on debt. Well, the government can, but consumers can’t. (Source: “Total Debt Balance,” New York Federal Reserve web site, last accessed January 29, 2016.)
Wall Street might cheer rising consumer spending. But you have to scratch your head and wonder why, with all that newly purchased loot, U.S. consumer sentiment is slipping?
The final reading of the University of Michigan’s consumer index for January fell from 93.3 earlier this month to 92.0, down from 92.6 hit in December. (Source: “Survey of Consumers University of Michigan,” University of Michigan, January 29, 2016.)
Wall Street economists are telling the public to chill out. The public is too worried about stock market turmoil, declining household wealth, and the weak economy. This might cut into their buying habits this year. (Source: “U.S. Consumer Sentiment Stumbles in January,” The Wall Street Journal, January 29, 2016.)
But fear not, the drop in consumer sentiment indicates slower growth, not a recession! And that brings us back to fourth-quarter GDP of just 0.7%. Real final sales of domestic products rose a measly 1.2% in the fourth quarter of 2015, down from 2.7% in the third quarter and 3.9% in the second.
That’s more than just slow growth; that’s a trend heading to a recession.
If the numbers were in reverse, economists would be championing the economic recovery. And if the downtrend related to a stock, they’d be telling you to run for the hills. But as it stands, the declining numbers aren’t, they believe, all that bad.
It’s one thing to be a contrarian in the face of bad economic news. It’s quite another to be an economist with a Pollyanna complex looking at the same economic headwinds.
The U.S. economy and global economies are doing poorly. The only thing that has kept stocks this high is the intervention by central banks around the world. They have no more financial tricks up their sleeves.
Take away the fuel and investors are stuck having to actually look at the real date. It isn’t pretty. At some point, the cheering will fade.
This is the real story Obama doesn’t want you to know.