Consumer Continues To Carry The Load

Published: May 31, 2016 | Topics: General Economic Conditions

Let’s get the bad news out of the way first. Q1 2016 GDP % growth rate was a dismal .8% and is reflective of an economy losing steam as suggested by the downward trend in GDP as presented below:

The principal culprit for this weak performance is B2B Industrial output which is being dragged down by persistently low commodity (metals, oil, gas, etc.) prices, a strong dollar, decreasing inventories, weak Euro zone demand and a slowing China. The following chart details the downward slope of industrial demand as measured by the Industrial Production Index, an economic indicator measuring real output of for manufacturing, mining, and electric, and gas utilities located in the United States.

So what is the good news? The U.S. consumer is healthier than any time since the Great Recession. Extraordinarily low interest rates have eased consumer debt service payments and inflation has been virtually nonexistent over the prior 18 months. Additionally, the labor environment remains steady with low unemployment (and an increasing participation rate), a recent uptick in wage growth, cheap imports and declining first time unemployment claims shown below:

The U.S. consumer is responsible for approximately 70% of domestic economic activity, and thus, given the aforementioned we do not anticipate a recession, although in our opinion 2016 GDP growth will be a modest 1%-2%.

For more information on our microcap private equity fund, please visit www.mcmcapital.com.

Capital ideas,
delivered to your inbox

Recent Posts
View All

June 2019 – Torsion Group Corp (“TGC”) is a manufacturer and distributor of garage door parts and accessories. For the past few years, one of TGC’s strategic initiatives has been vertically integrating to bring more manufacturing inhouse, giving the company more control over its supply chain while enhancing profitability. To that end, TGC purchased a...

An unexpected economic downturn can alter a business owner's exit planning timeline. Fortunately, a multitude of options exist to bridge valuation gaps when they arise.

Determining the value of a business is far from a straightforward discounted cash flow calculation. Regardless of whether a business owner relies on themselves, their management team, or a third party appraiser for conducting a business valuation, the exercise requires a thorough examination of the company's balance sheet, customer base, growth prospects, intangible assets, and...

MCM recently launched an interview series designed to help business owners better navigate the M&A process. Ever few weeks, our team will be interviewing business owners, capital investors, lawyers, accounting, tax, and other M&A professionals involved in buying and selling privately owned businesses. The series will cover topics ranging from business owner advice and experiences...