Thursday, October 25, 2012

The Economy Sucks ... Get Used to It, If You Haven't Already

Tomorrow's GDP report for the third calendar quarter will be weak. Expectations for the fourth quarter are no better.

While we in the U.S. may be the best house in a bad neighborhood, our economic performance is certainly nothing to brag about. As we continue to follow the failed example of the European welfare state, we'll get more and more like their economies. That's a shame, but it's also the truth, at least for now.

Business investment has ground to a halt is subtitled 'Is it the fiscal cliff, or weak growth here and abroad?:

"Despite an incredible 9.9% gain in orders for durable goods in October {NOTE: Most of the increase being attributable to volatile monthly aircraft orders which won't be repeated}, business investment — one of the major engines of economic and profit growth over the past three years — has stalled out, at least temporarily.

For the first quarter since late 2009, shipments of U.S.-made capital investment goods declined, falling at a 4.9% annual rate, according to Census Bureau data released on Thursday. Read “Durable-goods orders rebound in September.” 
That means the economy likely grew at less than a 2% annual pace in the third quarter, and probably won’t do much better in the final three months of the year.

Following the release of the durables report, economists . . . downgraded their estimate for third-quarter gross domestic product from 1.8% to 1.7%, and they lowered their estimate for fourth-quarter growth by a tenth to 1.5%.

The GDP report for the third quarter will be released on Friday. Read “U.S. GDP view cut to 1.7% after durables data”.

Fortunately, other sectors of the economy — notably home building and auto sales — have strengthened modestly, helping to offset some of the drag from the business sector.
Economists are in broad agreement that businesses aren’t investing in the equipment they would need to increase productivity or to expand their output, but they can’t agree on the causes of the downshift.

One camp puts much of the blame on the uncertainty created by the so-called fiscal cliff. In this view, business leaders are holding off on investments while they await Washington to act on tax rates and spending levels for next year.

If they are right, business investment should bounce back once the politicians reach a deal. See “Of 5 fiscal cliff outcomes, only 1 is disaster.”

But others say the weakness in investment has more to do with weak demand, not only here at home but abroad. Even if the fiscal cliff is averted, U.S. businesses will still see little sales growth.

As of yet, there are no signs that the decline in business investment will lead to an actual contraction in GDP. . . . Leading indicators of all stripes point to more of the same tepid growth in coming quarters." 

Summing Up

Economies around the world are slowing, and European countries are in recession.

Policies to encourage private sector growth are essentially non-exisistent, consumer demand remains weak and uncertainly clouds the future.

Unfortunately, this sad saga is not likely to end anytime soon, so get used to it, no matter how the election turns out. At least that's my view, admittedly not an optimistic one about the next few years.

The world is awash in debt and unaffordable government spending programs, and We the People are learning once again that more government spending will only result in more trouble for the economy, jobs and prosperity.

Thanks. Bob.

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