How Strong Is the US Economy
02/16/2015 12:01 am EST
As he delves into the initial 4th quarter GDP report, MoneyShow's Jim Jubak assesses what future revisions may mean for investor sentiment and the US stock market.
In a world where there's really not a whole lot of growth in a whole lot of economies, the question of how strong is the US economy is really, really important.
What we got for the fourth quarter was decent growth, but at 2.6% or so, not so strong that it made people feel really, really, really certain. There's a certain amount of worry. The problem is that's also the first read on US GDP. You get revision after revision after revision as they go through it and take things that were estimated in earlier versions and re-estimate them or take actual numbers and plug them in. For example, there's an inventory estimate that was in the first go-round on US GDP where the statistician basically looked at this and said well, we think from our preliminary data that we're going to see about a 0.6% increase in inventories and that helped move up GDP.
We're starting to get numbers in February that indicate that maybe that estimate was wrong. It was wrong to the high side and what that would lead to is a revision to the US GDP. Then, instead of 2.6%, we might get 2.4% or something like that. This is not a big deal in normal circumstances, in other circumstances. It's the kind of the thing that happens from quarter to quarter. It's essentially statistical noise.
The problem is when statistical noise hits a market where people are kind of worried about what the trend really is and I think that's where we are. The issue isn't so much just US growth but worries about US growth.
This is a market that's looking at corporate earnings and seeing a pretty big headwind from a stronger dollar, which is depressing the earnings of US companies that are taking sales and translating them back into dollars from weaker currencies, so you're seeing some worries about growth and whether the US economy is strong enough. The Fed has not unequivocally said the US economy is strong enough so that we're going to raise rates. That's good in the sense that you don't raise rates. It's bad in the sense the Fed is expressing its doubts about whether the US economy is strong enough to pull the rest of the world.
So, with this inventory number, which is a normal part of the statistical revision of GDP from quarter to quarter, you get a couple of estimates. You get an early estimate. You get a revised estimate. This is the normal course of business and it looks like right now the next revision of GDP for fourth quarter is going to be lower than the first version.
I think that's important because of this worry in the market and I think that it's one other reason to think that maybe we're entering a period where in the Goldilocks economy where you get Goldilocks saying oh, well, gee that porridge isn't too hot. That porridge is really too cold and feeling like that maybe is not a good thing.