Economy Strong Despite First Quarter Growth

First quarter growth may not be nearing initial projections, but economists remain optimistic for the rest of the year. Liz Ann Sonders, chief investment strategist at Charles Schwab, said: “The economy still looks strong and we believe the upcoming earnings season will be solid.”

CNBC reports:

 

Economist: Economy much stronger than Q1 GDP might suggest from CNBC.

Pregnancy Rates May Predict Economic Changes, New Report Shows

The National Bureau of Economic Research (NBER) published a report early this week demonstrating a correlation between national conception rates and economic recessions. According to the report, pregnancy rates have dropped prior to economic downturns several times over the last few decades, indicating that they can predict the economic trajectory.

The report calls the findings a “new business cycle fact”, stating that the “the growth rate of conceptions declines prior to economic downturns and the decline occurs several quarters before recessions begin.”

“Our findings suggest that fertility behavior is more forward-looking and sensitive to changes in short-run expectations about the economy than previously thought,” the report explains. “The (2008) recession began in December, as later determined by the NBER, and by this time conceptions had already been in decline for months,” the report said. It adds that all normal economic indicators were positive in 2007. Consumer confidence was high and the stock market was strong, too.

Conception growth rates changes before the collapse of Bear Stearns and Lehman Brothers, as well.

“Bear Stearns did not collapse until the end of the spring of 2008. Several months later, in September of 2008, Lehman Brothers collapsed, an event sometimes considered a catalyst in the great recession,” the economists noted. However, conception rates in the first three quarters of 2008 were already 100,000 lower than those of 2006, and falling.

“Once you examine monthly or quarterly data, the pattern becomes obvious,” said one of the study’s authors Daniel Hungerman. “We show the existence and magnitude of this pattern before the Great Recession, and it’s striking since that recession was famously hard to predict. None of the experts saw it coming,” he said, “And in its first few months, many business leaders were convinced the economy was doing OK — even as the number of conceptions plummeted and had been falling for a while.”

According to the report’s data, conception rates predict upcoming downturns more accurately- and earlier- than GDP growth rates.

US Economy: Ebbs and Flows

Taking the month of January to reflect on economic ebbs and flows in America over 2017 we find a lot of conflicting data that leaves us with a somewhat inconclusive picture on how the economy in the region is faring.  Still, it’s good that there are a lot of positive indicators for financial stability and economic growth in 2018.

When there is talk of a country having a strong economy, Forbes contributor Salvatore Babones assesses this to mean that there is more capital entering the country than leaving it (as there is a large trade deficit).

Who, and what, is responsible for this?  it’s hard to say given that when Trump came into office, he was able to enjoy the “longest uninterrupted stretch of private sector job growth ever recorded.” So it cannot really be attributed to our President.

Having said that, last year American stocks returned a staggering 20 percent.  Given that the new tax law is lowering corporate rates, companies are being encouraged to bring back some of the monies that they had overseas in an effort to not have to encounter inhibitive taxes.  As the money comes back to America there are additional M&As, dividend payments and stock buybacks happening.

In other positive news in Q4 2017 the economy encountered its fastest growth since 2015. This has resulted in greater spending from a  heightened consumer confidence.

Republican Tax Reform and This Year’s Economy

President Trump signed the Republican tax bill on Friday, bringing a wave of changes to the way American citizens and businesses pay their taxes. Mr. Trump called it a “historic moment for the American people.”

The new laws are expected to impact many sectors this year. According to Zacks Investment Research research director Sheraz Mian, the tax reform “will have a big impact on corporate profitability … all of it positive,” thereby supporting the stock market, albeit slowly.

Meanwhile, experts project a slight decline in real estate as a result of the bill, as well as a rise in corporate activity such as expansions and acquisitions. For individuals, on the other hand, the tax return process will likely be simpler moving forward.

Mega Media Merger: Is the Sky the Limit? What Does the Fox Say?

The Walt Disney Company is in the process of purchasing 21st Century Fox.  At a price tag of $52.4 billion, for the deal to come to fruition, many regulatory hurdles need to be tackled.

One issue is that 21st Century Fox only owns 39% of Sky. Another is that the two companies are not in the same country: Disney is American and Fox is British; each country has different regulatory laws.  And a third is the concern of investors in Sky seeking to protect their stock if the sale goes ahead.

Global private investment firm Polygon co-founder Reade Griffith is one of the many individuals who has so voiced his concern.  Should the rest of Sky not be purchased by 21st Century Fox, it would negatively impact share values.  He also  pointed out  “it can be reasonably assumed that buying the Sky stake is a significant purpose of the Fox merger, given Disney CEO Bob Iger told Bloomberg TV that Sky is a ‘crown jewel’ in Fox’s assets.”

Griffith added:

“The Fox and the Mouse have been more clever than that. They have included the Sky stake into a box full of other attractive Fox assets and tied it up with a bow and ribbon and told the Takeover Panel that Rule 9.1 does not apply and therefore no premium is warranted to minorities.”

Next there are matters of antitrust.  The union which represents media writers – The Writers Guild of American West – said: “the antitrust concerns raised by this deal are obvious and significant…[by]…substantially increasing the market power of a combined Disney-Fox corporation.” It will thus be working to “ensure [America’s] antitrust laws are enforced.”

Price control and consumer options are a concern for the people who use these media outlets.  USC Marshall School of Business Marketing Professor, Gene Del Vecchio, voiced his concern on asking, “Will it give Disney undue power? Power not only in terms of consumer choices and prices, but power for the back-end of their business — theater owners etc.”

There is the worry about the monopoly created if the merger takes place.    Media consultant Mathew Horsman said: “It was always the Murdoch-element and the issue of the Murdoch family trust having controlling influence over the newspapers. That wouldn’t be an issue with Disney.”

The concerns are not just restricted to the Americans; the Brits have their own list of causes for concern.  For example, Tom Watson, Deputy Leader of the Labour Party in the UK said: “It’s important for Disney, a highly respected global media brand, that they do not allow the toxic corporate culture we have seen in the Murdoch empire to contaminate their business and tarnish their reputation.”

A lot needs to happen for this merger to go ahead and there will no doubt be substantial more discussion on the issue over the coming weeks.

20% Corporate Rate Plan to Boost Economy

According to Morgan Stanley, a GOP plan to place US corporate taxes within the 20% range could significantly boost the country’s economy.
CNBC reports:

Morgan Stanley CEO: US corporate taxes should be in 20% range from CNBC.

Economy on the Rise Despite Hurricanes Harvey and Irma

According to recent reports, the U.S. economy accelerated during the second quarter, surpassing previous predications and reaching its fastest growth rate in over two years. However, the third quarter will likely show a loss of momentum because of the hurricanes which battered the country at the start of the season.

The Commerce Department gave its third estimate earlier this week, revealing that GDP increased at an annual rate of 3.1% between April and June, demonstrating an increase in inventory investment.

Economists throughout the U.S. expect the damage from Hurricanes Harvey and Irma to reduce up to 6/10s of a percentage point in growth in the third quarter.

“The destruction caused by Hurricanes Harvey and Irma and the resulting disruption are expect to be a drag on third-quarter growth,” said Plante Moral Financial Advisors CEO Jim Baird. “Nonetheless, the economy remains on track.”

Hurricane Harvey has impacted retail sales, industrial production and homebuilding and home sales, and other markets will likely see damage as a result of Irma’s strike as well. Rebuilding and development in the aftermath of the storms, however, are likely to boost gross domestic product growth in the fourth quarter as inventory investments from businesses increase.

Daniel Silver of JPMorgan explained: “The data available so far suggest that the firming in real inventory accumulation between second quarter and third quarter could be significant and could add over a full percentage point to growth in the third quarter.”

The Shaping of the US Economy

What issues are currently shaping the US economy?

First, the growth and expansion of Silicon Valley which seems to be fast moving to various cities around America.  According to Peter Hirshberg, Group Chairman at Re:Imagine (a technology firm that drives innovation in the public and private sector) “the ethos of Silicon Valley” is spreading nationwide right now.  This can be seen in places such as Kentucky, Louisville, Ohio and Youngstown which are becoming “maker cities” for this trend.

Second, the developing strength of the middle classes countrywide.  Incomes grew by 3.2 percent in 2016 (following a ten year stretch that was described as the Great Recession due to unemployment and low wages). Plus, there was a jump in household income for the median household in the country to $59,039 during that time (from 2015’s figure of $57,230).

Third, the economy’s strength and weakness can be viewed via the stocks’ sluggish performance.  According to a recent statement by equity strategist Steven DeSanctis and his associate Miles Bredenoord, there was a 0.5 percent drop in earnings for stocks with small market capitalizations.  In addition, the 10.4 % point gap between small- and large-cap earnings growth was the largest it had been since the fiscal crisis.

These are just some of the areas by which the US economy is being shaped.

Economic Impact of Hurricane Harvey

UK King’s College Associate Professor of Economics Brian Brenberg, discusses the economic impact of Hurricane Harvey.

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