This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
The good news is that the economy just printed its second consecutive quarter of 3% growth, a feat not accomplished since Q2 and Q3 2014. The bad news is that the growth spurt in 2014 was better, quantitatively and qualitatively. Those two quarters produced gains of 4.6% and 5.2% (annualized) in GDP, much better than the most recent 3.1% and 3% prints of Q2 and Q3 2017. And it took a hurricane to get the most recent quarter up to the 3% level, an event, as a South Florida resident, I surely hope isn’t repeated any time soon. Further bad news can be found in the period immediately after that 2014 spurt as quarterly growth fell to 0.5% by Q4 2015; the spurt was just that and did not produce a sustainable change in the overall trajectory of the economy. I see no reason to expect this episode to end any differently.
It probably can’t be emphasized enough to investors that the quarter to quarter or month to month changes we see in the economic data are so much noise and tell us very little. Through the course of a business cycle we can have several slowdowns and accelerations that turn out to be nothing more than that, short term changes in the first or second derivative. That’s why we so often look at year over year data and even longer periods to get a sense of what is really going on. The most recent durable goods orders report is a great example (and these ups and downs are much more pronounced in the goods side of the economy).
This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ November 7, 2017.
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