Second quarter Gross Domestic Product (GDP), which is the largest measure of economic activity, was just revised upward by the U.S. BEA, from the initial annualized reading of 2.6% to 3.0%. That compares with 1.2% in Q1.
Warren Buffett: "This doesn't feel like a 3% GDP economy."
The legendary billionaire investor was asked, “Does this feel like a 3% GDP economy to you?” Buffett didn’t miss a beat. “No, it’s been about 2% per year now since the fall of 2009.”
While Mr. Buffett also pointed out that long-term growth of 2% “is not bad,” he maintained that it just doesn’t feel like a 3% economy to him. In a way, he’s right. One-quarter isn’t enough to sway sentiment.
If we look at the data provided by the U.S. BEA, the economy has exceeded a 3% annualized rate just once during the last 2½ years. It’s also fallen below 1% twice. Coincidentally, the average increase in GDP over the last ten quarters is exactly 2%.
No doubt about it, at the margin, the improvement is welcome. And recent reports suggest the economy is on a firmer footing, even if GDP growth hasn’t been very robust.
The jobless rate stands at 4.4% (U.S. BLS), which many economists would argue is near or at full employment. And job creation has been respectable, if unspectacular (using payroll data from the U.S. BLS).
Job openings stand at over 6 million, a record high that dates back to 2001 when this particular survey began (U.S. BLS). Plus, weekly first-time claims for unemployment insurance remain at an unusually low level (Dept. of Labor), which indicates employers are reluctant to lose workers amid improving business conditions and the difficulty in finding new ones.
Generally upbeat conditions in the labor market may not spread evenly to every industry, and wages have yet to significantly turn higher, but favorable numbers are underpinning consumer confidence, in our view.
Just take a quick peek at the Conference Board’s monthly survey of consumer confidence, which has registered its second highest reading of the expansion and the second highest reading since late 2000.
The upbeat sentiment suggests the extremely divisive mood in the country that has been played up in the media isn’t dampening sentiment.
Over the past 50 years, September has historically been the worst-performing month for stocks. It’s unclear why that happens, and it doesn’t necessarily mean we’ll be treated to an early Halloween, but here are three things we're monitoring.
- North Korea. It has yet to significantly impact shares, but what’s happening in Asia is unsettling and could create temporary dips in the market.
- A Government Shutdown. We may see one October 1. Historically, government shutdowns may create a few bumps as short-term traders react to headlines, but longer term, the 18 shutdowns since 1976 have had virtually no impact on shares (NBC News, St. Louis Federal Reserve).
- Breaching The Debt Ceiling. The Treasury will run out of authority to borrow, likely in early October. In the unlikely event Congress fails to raise the debt ceiling, we would sail into uncharted financial waters. If we tiptoe up to the deadline, expect uncertainty to rise.
Table 1: Key Index Returns
|MTD %||YTD %||3-year* %|
|Dow Jones Industrial Average||+0.3||+11.1||+8.7|
|S&P 500 Index||+0.1||+10.4||+7.3|
|Russell 2000 Index||-1.4||+3.5||+6.2|
|MSCI World ex-USA**||-0.3||+13.9||-0.4|
|MSCI Emerging Markets**||+2.0||+26.1||Unchanged|
|Bloomberg Barclays US Aggregate Bond Index||+0.9||+3.6||+2.6|
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: July 31, 2017 - August 31, 2017
YTD returns: December 30, 2016 - August 31, 2017
**in US dollars
We hope you've found this monthly update to be educational. If you have any questions and would like to discuss your portfolio or other important financial matters, please give us a call at (330) 836-7000 or schedule an appointment here.
Many happy returns on life,
Jonathan Torrens CFP®
President and Chief Investment Officer
TCM Wealth Advisors
Is Your Portfolio Prepared For The Next Bear Market?
To see if your current portfolio matches your risk tolerance level, you can take this brief five-minute quiz for a complimentary review of your portfolio:
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.