Prudence Demands

While I’ll no doubt have more to offer by way of commentary on this morning’s Q3 GDP report, in a nutshell 1.9% growth is better than the 1.6% economists had forecast, and we can thank ourselves, us consumers, for keeping the economy afloat (although Uncle Sam did pitch in as well):

Personal Consumption: +2.9%
Residential Investment: +5.1%
Government Spending: +2.0%

That’s the good news.

The bad news is that the underlying stuff that might have us feeling confident that the above good stuff will continue, well, doesn’t leave us feeling all that confident:

Business Fixed Investment: -3.0%

For perspective, that’s the second consecutive quarterly decline in business fixed investment (expansion). Prior to this stretch we hadn’t seen contraction in this metric since 2015, prior to that was 2012, prior to that was 2011, prior to that was 2008, prior to that was 2004, prior to that was 2000.

As clients and regular readers know, our assessment of general conditions is not presently rosy. The question we are asking ourselves (and painstakingly exploring) day in and day out is, is the present spate of concerning data likely to morph into something along the lines of 2004, 2011/2012 and 2015, which all turned out to be rough patches, but not recessions, with respective S&P 500 declines of 8%, 19% and 16% — or more akin to 2000 and 2008, which turned into recessions, with respective (and, frankly, horrific) S&P 500 declines of 50% and 57%.

Yes, prudence demands that we tread cautiously for the time being!!


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