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The Global Economy: Not as Bad as You Think?

August 12, 2016

Enterprise Trust Company

The U.S. economy keeps chugging along, but economic growth overseas is hit or miss. Not that domestic growth the last three quarters has been anything to write home about, averaging just 1%, but there are tentative signs that the third quarter will be better (more on this in a moment). Internationally, the Eurozone is growing at a rate below 1%. The UK appears to be slowing from its 2.3% growth rate during the second quarter (Brexit related). Japan is in and out of recession. On the positive front, China’s growth rate appears to be accelerating towards the 6% level. Official GDP growth figures are higher than that but those figures are suspect at best. A private sector index of broad economic activity indicated growth slowed to 1.5% in late 2015 but is now above 5%. India is growing at a rate above 7% thanks to a robust service sector but manufacturing growth is not as strong.

So, outside of the US, developed country growth is anemic, but emerging market growth in the Asian region may be climbing. What about US growth; will we see an acceleration in US growth or are we headed for recession? It appears, based on initial economic readings, that growth in the third quarter will be stronger than the last three quarters. After creating only 24,000 jobs in May, the US economy added over 250,000 jobs in June and July. Over the past twelve months, the economy has added slightly more than 200,000 jobs per month. More importantly, Initial Jobless Claims, remain at 40 year lows and fell again this week. The reason for the weak second quarter GDP growth report was primarily due to a drop in inventories at domestic producers. So far this quarter, retail sales are strong, housing starts are exceeding expectations and industrial production is increasing. The inventory decline of the second quarter is not likely to repeat itself.

That begs the question, seven years into this expansion, where do we go from here? The third quarter appears to indicate growth is expanding. The St. Louis Fed, in recent comments, does not see a recession for at least the next two to two and a half years. Time will tell, but right now the US economy may be poised to continue to grow at a modest pace.

 

Disclosures: This piece discusses general market activity, industry or sector trends, or other broad-based economic, market , or political conditions and should not be construed as research or investment advice. The opinions expressed are those of the author and do not necessarily represent the opinions of Enterprise Bank & Trust. Past performance is no guarantee of future performance. No diversification strategy can guarantee against loss.


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