Before we review the preliminary Q3 GDP growth report, it’s important to recognize America’s relative outperformance in the rate of change terms over the global economy. 2018 has been a fantastic year of the rate of change outperformance for America as growth accelerated partially due to the fiscal stimulus while growth slowed in the rest of the world. The chart below is a great depiction of this.
Source: Haver Analytics
Real GDP growth in America is almost the same as the rest of the world. This is after growth was about 1.5% slower in America in mid-2017. The US has underperformed since early 2015. The 6-month moving average of the ISM imports shows similar information. It’s important to avoid the negative talk about how the manufacturing PMI fell from September to October because there are random vacillations from month to month. This survey has a small sample size. The October PMI was still consistent with 4.5% GDP growth, so it was far from a bad report.
Very Long, But Subdued Economic Recovery
The negative chatter about the economy has gotten strong because of the correction in stocks. The same prognosticators who didn’t predict the correction are claiming it proves a recession is coming. That’s unlikely to be true in the intermediate term as the truck tonnage index recently hit a record high and the employment cost index is at a 10- year high. Both historically peak more than 6 months before the S&P 500. As you can see from the chart below, this is about to be the longest expansion since the 1800s (chart only demonstrates up until 1949). However, annualized real GDP growth is the lowest out of the expansions listed.
Source: Twitter @CharlieBilello
Total growth is only middling despite the length of this expansion. The September PCE report showed both headline and core inflation are at the Fed’s target of 2% which suggests the economy isn’t running hot.
