The following is an excerpt from Provident Investment Management’s November Investment Comments.
Early in my career, a much senior colleague observed that it is difficult to bring the U.S. economy down. Over the past 28 years, I have seen many challenges along the way but only three that were devastating enough to bring on recessions. Most economic challenges end up being resolved without a recession.
While the U.S. economic recovery has been tepid and unsatisfying following in the aftermath of the recent recession, it appears to have been relatively stable at these modest levels of growth. “Real final sales,” which measures Gross Domestic Product (GDP) excluding inventory changes, grew 2.2% in each of 2012 and 2013. While it rose 3.2% in the second quarter, this only partially made up for the weather-induced decline in the first quarter.
The U.S. employment situation is somewhere between moderate and strong. Job growth has been positive every month for four years and the economy has created at least 180,000 jobs in each of the past eight months. The most recent report, covering September, was strong enough to cause some economists to wonder whether the Federal Reserve Board needed to raise interest rates sooner than planned. The unemployment rate is down to 5.9%, although much of the improvement has been caused by declining labor force participation.
Personal income and consumer spending maintained their growth trajectories in August, the most recent month for which data is available. However, a measure of U.S. retail sales declined slightly in September, even after removing volatile automobile and gasoline sales. This one data point stands in contrast to favorable across-the-board results the month before. Factory production continues to grow strongly according to the monthly Institute for Supply Management survey.
Scott D. Horsburgh, CFA, is president and portfolio manager for Provident Investment Management. He has been a professional investment manager for 25 years and has been writing for BetterInvesting Magazine for more than a decade
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