3 May

Day 102

DAY 102…

The first major political milestone of the Trump administration has been passed with an environmental march in Washington and a speech for the faithful in Harrisburg. We are now on day 102. The press and the President have been focusing on the “first 100 days” like a marking period in school – but with little relevance to the real world. So let’s move on.

Since we last wrote, an initial measure (subject to revision, we might add) of Q1 GDP growth in the US was announced and it was a subpar +0.7%. If this number holds up to later recalibrations, it will be the slowest start to a new year for some years – not exactly for what our leaders in DC were hoping. Consumer spending was the “culprit”. It was weak despite high consumer sentiment measures which were recorded during the period. Employment has been strong and wages have been going up. So we think that the American consumer probably took “a pause that refreshed” and will be back later in the year.

Also during the quarter, gross private fixed investment jumped at an annualized 12% rate. This is encouraging for such investment boosts productivity of those who are employed and we have seen little such investment for a number of years.

Looking at the above chart, real gross private domestic investment grew at a 3.7% annualized rate from 1966 through 2007. At the same time, real GDP grew at a 3.1% annualized rate. From 2007 until March of 2017, private investment has posted only a 1% annualized growth rate and  the US economy has only expanded at a rate of 2.1%. There is a powerful “cause and effect”.

First quarter earnings have so far come in better than expected by analysts and earnings estimates for 2017 are being raised as a consequence. This is different than before when analysts would routinely lower their estimates for a year, as the year progressed. We hope (and expect) that better earnings will lead to more corporate investment, greater productivity and higher stock prices.