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Afternoon Note

Consumers and Business Drive GDP

By Charles Payne, CEO & Principal Analyst
8/30/2017 1:19 PM
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 Three percent Gross Domestic Product (GDP) has become the most important number at the crossroads of the economy and politics. The last time America put in that kind of growth was in 2005 when the full year GDP was 3.3%, down from 3.8% in 2004.

It should be noted, at one time 3.0% annual growth was commonplace, and in fact, 4.0% wasn’t unusual in the Reagan years once his tax cuts took hold and optimism morphed into action. The wheels seemed to come off in 2001 as the nation grappled with 9-11 and the remnants of recession. I’ve wonder many times what could be different.

Yes, mounting debt hasn’t helped, but there seems to be other issues.

While consumer spending was strong at 3.3%, I think the highlight of the report was Gross Private Domestic Investment +3.6% driven by +6.9% non-residential investments.

Businesses are spending money in areas that speak to long term prosperity – this is biggest takeaway from report. 

Note: government spending soared for defense +4.7%, but non-defense declined 1.9%, and overall government consumption expenditure was -0.3%.

Historic Hurdle

The problem has been a big reason more Americans have begun to question capitalism. It’s a problem for all advanced economies, but other factors, from crony capitalism, high taxes, mounting debt and aging societies, are the real culprits.

As for quarterly GDP reports north of 3.0%, they are not rare, although have become further apart.  In his two terms, President Obama enjoyed eight quarters of such growth, but never a single full year. It might not happen this year after that 1.2% for the first quarter, but indications point to back to back quarters of 3.0%+ growth, which hasn’t happened since 2015.

The potential is there…we are on the cusp of something special. Something, they said couldn’t be done.

For the remainder of the session, it will be interesting to see how the market reacts to President Trump’s pitch for tax reform. A few months ago, his guarantee of lower taxes was good enough to send stocks to the moon. I think investors still believe it, but the fact the message is being delivered in Missouri, and not the White House, underscores the need to sell this to Congress, and even his own party.

Apparently, there will not be a lot of details in the speech. That shouldn’t matter if there is serious movement behind the scenes.

The stock market rally had anticipated all the improving economic data. Now, the pleasant surprises would be making the economic agenda a reality.


Comments
Trust your wisdom Charles follow u on twitter. Rcy

Italia on 8/30/2017 9:54:03 PM
 

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