2014 Wrap-Up & 2015 Outlook

On January 27th, 2015, posted in: Economic News, Newsletter by

With the radical political party taking control of Greece in their recent election, and the potential fallout with the Euro and European Community, it’s important to keep in mind that the US economy continues to see growth in GDP. The GDP dropped in the first quarter of last year. When it did, some analysts predicted another recession. But saner minds attributed the decline to the unusually harsh winter weather and said the economy would rebound quickly.

What happened? GDP grew at a 4.6% annual rate in the second quarter and 5% in the third. The final numbers on Q4 should be out soon. The expected announcement is for GDP growth to be 3.3% annual rate. If this is right, real GDP for 2014 was 2.6%, ahead of the 2.3% rate since the recovery started in 2009.

For 2015, forecasts are for 2.7%. It is possible it will be higher, based on low oil prices and Europe’s quantitative easing. Greece adds a level of uncertainty, but compared to the U.S. economic strength, these are all peripheral.

Lower oil prices will likely increase non-oil spending, but oil production is going to slowdown till the price of oil stabilizes. Predictions related to Middle East Oil show they need $80/bbl to meet their infrastructure cash flows. QE in Europe is not going to help boost growth; it will do the same thing in Europe it did here, stuff the European banks with excess reserves they won’t use. FYI – U.S. exports to Greece are less than 0.01% of US GDP.

Investors who focus on the economic fundamentals will see they have not changed. U.S. monetary policy remains loose. Tax rates are not going up anytime soon (irrespective of what President Obama said in his STOU address), and technology and medical innovation is moving at an incredibly fast pace.

Here are recent updates on Q4.

Consumption: Auto sales increased at a 0.5% annual rate in Q4. But services make up about 2/3 of personal consumption and those were up at about a 4.5% rate. Personal consumption of goods and services grew at a 3.8% annual rate in Q4.

Business Investment: Business equipment investment and commercial construction were both unchanged in Q4. Factoring in R&D sugges2ts overall business investment grew at a 0.8% rate, which should add 0.1 point to the real GDP growth rate (0.8 times the 13% business investment share of GDP equals 0.1).

Home Building: There was a 9% annualized gain in home building in Q4.

Government: Public construction projects continued to increase in Q4 while military spending picked up as well. As a result, it looks like real government purchases grew at a 1.1% annual rate in Q4.

Trade: At this point, the government only has trade data through November, but the data so far suggest the “real” trade deficit in goods has gotten a little smaller.

The US government expansion has impacted growth and why the recovery has been so slow. But, even in this environment, the private sector still has room to grow. Not just in Q4, but in 2015 and likely beyond.

 

 

 

This information is compiled by Guy Baker from an assortment of news feeds including First Trust, Yahoo Finance, Bloomburg and others. This information is intended to be informational only. This newsletter contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Investing involves risk including the potential for loss of principal. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

No Responses to “2014 Wrap-Up & 2015 Outlook”

Leave a Reply