By Sasha Cekerevac for Investment Contrarians | Nov 13, 2013
To some people in the mainstream media, last week’s advance estimate on U.S. gross domestic product (GDP) growth was seen as a positive surprise.
According to the U.S. Department of Commerce, the advance estimate on U.S. GDP growth for the third quarter of 2013 was an annual rate of 2.8%. In the second quarter, real GDP growth was 2.5%. (Source: U.S. Department of Commerce, November 7, 2013.)
Reading just the headline, it would be easy to assume that GDP growth was accelerating on a solid footing. However, had they looked just a bit deeper, they’d find that the truth is the GDP growth estimate that was reported was actually much worse than the headline number.
The fundamental strength underpinning this increase in GDP growth was temporary, and it could lead to a much weaker fourth quarter. If investor sentiment were propelled higher due to this blip in GDP growth, it would be a mistake.
The big increase in GDP growth was due to a build-up of inventory, a reduction of imports, and an increase in spending by state and local governments.
What happened to consumer spending, which makes up three-quarters of our economy? Personal consumption increased by 1.5% in the third quarter versus an increase of 1.8% in the second quarter. People began to reduce their spending versus the first half of the year.
Inventory increased by $86.0 billion in the third quarter, versus a $56.6 billion increase in the second quarter and a $42.2 billion increase in the first quarter.
Just the increase in inventory alone added 0.83% to the GDP growth figure. If investor sentiment is increasing based … Read More
In my previous commentary, I discussed the third-quarter gross domestic product (GDP) growth and how it was really weaker than it appeared. The Federal Reserve should realize the underlying weakness in personal spending, business investment, and export sales.
The nonfarm payrolls reading released on Friday was also suspect. On the surface, the creation of 204,000 new jobs in the jobs market in October seemed spectacular, given the U.S. government shutdown during that period. Apparently, the impasse didn’t impact the October jobs market, according to the U.S. Bureau of Labor Statistics. (Source: “Employment Situation Summary,” Bureau of Labor Statistics, November 8, 2013.)
But then there are other numbers that shed some light on October’s count. Given the Briefing.com estimate of 120,000 new jobs, the October jobs market reading appears to be spectacular. An average of 190,000 new jobs have been created each month over the past 12 months. The stock market appears to be scared by the numbers (fearing a drop in quantitative easing), but the reality is the economy needs to see about 400,000 to 500,000 new jobs created each year to maintain a healthy jobs market. The average jobs growth is supported by the weak revenue growth by corporate America. It’s clearly time to take some money off the table on stocks now.
There also continues to be 11.3 million unemployed in the jobs market, and that figure is likely much higher if you count the workers who have dropped out from the workforce and those who are employed full-time but working at jobs that are well below their experience level and skill set. About 8.1 million were working … Read More