Flaps Down…

Although Q4 2012 ended with a whimper as GDP growth was a microscopic 0.1%; the consensus among 40 economists polled by the Federal Reserve Bank of Philadelphia (those optimistic buggers), was for an accelerating economy in 2013 as follows:


Consensus GDP Growth

Actual GDP Growth

Q1 2013



Q2 2013



Q3 2013



Q4 2013




Contrary to the consensus above, our 2013 expectations were for GDP growth of 1.5% – 2.0% (see my blog https://www.mcmcapital.com/2013/03/not-impressed/) due to concerns over this Presidential administration’s heavy regulatory posture, the looming, but unknown, impact of the Affordable Care Act and enacted and desired increases in both personal and corporate income taxes in an effort to solve fiscal issues. Consequently, Company CEOs have reacted by cautiously investing in incremental human resources and carefully controlling payroll expenses. In fact, although payroll hours and earnings have increased 4% since bottoming out in January 2010, 4 1/2 years later they remain 1.3% below pre-recession levels.

Source: US Bureau of Labor Statistics

I sincerely hope I am wrong, but I believe our flaps are down and we are losing speed.  There does not appear to be a catalyst to jump start employment and thus the consensus forecasters appear to have been overly optimistic, but who can really blame them. We are now 4 1/2 years removed since the recession ended (Q2 2009) and have nowhere near the type of GDP growth and employment rebound typical of prior recoveries. To put that in context, consider the following graph which details the cumulative GDP growth rates for the consecutive 16 quarters post-recession for the prior 4 recessions.

Source: US Bureau of Economic Analysis

Before I get criticized by some of our readers, I will grant the logic behind the above graph may not be a statistically valid measurement; however, it is certainly directionally accurate.

So can we remain in the air or are we in for a bumpy landing? Unfortunately, regulations, the weight of tepid consumer spending and continued unemployment is creating too much drag at the moment.  At the end Q2 the all-important US consumer began taking their foot off the gas and the US economy began to lose momentum (other than certain segments such as housing and automotive). Slowing consumer spending has been self-evident in recent disappointing same store sales data from the likes of consumer bellwethers such as Wal-Mart (-.3%) and Target (1.2%). Not surprisingly, the third-quarter consensus view on GDP growth has been lowered to 1.5%, down from the original forecast of 2.3%. Without stronger employment trends we are likely to continue to muddle along with tepid GDP growth. The official unemployment rate for July is 7.4% which, unfortunately, is unlikely to materially improve in the near term. The current administration’s big government stimulus programs, mountainous amounts of new regulations (anyone happen to read Dodd-Frank?) and drive to increase taxes is simply not working. The fiscal pendulum has swung to the extreme left politically and, ironically, is hurting the very people it strives to assist. We can only hope the current administration becomes more centrist in their economic policies and our economy regains altitude.

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