The U.S. Economy is Chugging Along
Executive Summary
- The U.S. economy continues to expand, and the fear of a recession has decreased
- U.S. GDP grew at 2.1% in the fourth quarter and 2.3% for 2019
- ISM Manufacturing and Non-Manufacturing Data also confirm the U.S. economy continues to show strength
Over the last week, new data has been released to shed some light on the U.S. economy. The fourth quarter and 2019 GDP growth were released, and the ISM Manufacturing and Non-Manufacturing data became available. For most of last year, the fear was that a recession was imminent, especially after the yield curve inversion that happened during the summer. The pessimists pointed to the downward trend in manufacturing data and the optimist touted that the strength in consumer consumption would be enough to keep the economy growing.
We wrote on many weekly market updates that more weight should be placed on the consumer because it accounts for 68% of the now $21.7 trillion U.S. economy, while manufacturing is only 11%.[i] Sure enough, a recession did not occur in 2019, and as of the last few months, the probability of a U.S. recession was decreased substantially as measured by the NY Fed model.
We are not permanent optimist and rely on new data to inform us of what is likely to occur, so we can position our portfolios to benefit from opportunities. The data released over the last week continues to show that the U.S. economy is growing, although it is decelerating as compared to previous years. GDP growth for the fourth quarter was 2.1% and for the full year it expanded at a rate of 2.3%. While these are not great numbers, it still shows the economy is expanding.
To the surprise of many analysts, the ISM Manufacturing Index increased to a reading of 50.9 last month; the highest level since July. A reading above 50 denotes the economy is growing. Prior to last month, the index had contracted for five straight months and was the trend many pessimists pointed at as proof a recession was looming. The ISM Non-Manufacturing Activity Index also was released this week and beat consensus estimates. The reading came in at 55.5 last month vs the average value of 55.0; a figure that yet again points to an expanding economy.
The S&P 500 has had wild swings the last couple of weeks on fears of the coronavirus. As Robert Luna, Surevest CEO & Chief Investment Strategist, said last week, “we don’t make investment decisions on short term market movement, but rather on fundamental long-term prospects of the economy and the markets.” As volatility picks up this year, it is important to remind investors to stay focus on their investment strategy and not panic on short term news that scare the markets into a selloff. We will continue to monitor the environment to make sure things are moving in the right direction.
