FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
June 5, 2018
1. First Quarter GDP Growth Slowed to 2.2% Annual Rate
2. Can the US Economy Really Grow at 3% or Better This Year?
3. US Regains #1 Spot in Global Competitiveness Ranking
4. How Candidate & President Trump’s Critics Got It So Wrong
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
Overview
A surprising new report from a respected independent research group in Switzerland concluded that the United States has regained its position as the #1 nation in its global competitiveness ranking. This accomplishment was not expected and has not been widely reported in the mainstream media – no surprise there.
The US jumped three spots to take over the top spot in global competitiveness – now ahead of Hong Kong, Singapore, the Netherlands and Switzerland – the previous leaders in recent years. The jump was based on the US “strength in economic performance and infrastructure,” ranking first in both areas.
Before we get to that exciting discussion, let’s take a brief look at last week’s mildly disappointing second estimate of 1Q Gross Domestic Product, which came in at 2.2% versus the initial estimate of 2.3%. The decrease was largely due to weaker than expected consumer spending.
Fortunately, consumer spending has improved in the current quarter, and more and more economists now believe we will see GDP growth of 3% or better for all of 2018. I’ll tell you why below. It should make for an interesting E-Letter.
First Quarter GDP Growth Slowed to 2.2% Annual Rate
US economic growth slowed slightly more than initially thought in the 1Q as consumer spending rose at its weakest pace in nearly five years. Gross Domestic Product increased at a 2.2% annual rate, the Commerce Department reported last Wednesday in its second estimate of 1Q GDP; that was down from the previously reported 2.3%. The economy grew at a 2.9% rate in the 4Q.
Consumer spending, which accounts for more than two-thirds of total US economic output, rose only at a 1% annual pace in the 1Q, the weakest quarter for consumer spending in nearly five years. Most economists expect consumer spending to strengthen the rest of this year – in fact it already has.
Business spending was stronger than initially estimated in the 1Q, revised up to 6.5% from 4.6% reported last month. Yet inventory investment was far smaller than the government reported last month, slashed from $33.1 billion to $20.2 billion.
Corporate profits were bolstered in the 1Q by tax cuts enacted at the end of 2017. A key measure of US business earnings — profits after tax without inventory valuation and capital consumption adjustments — jumped a seasonally adjusted 7.8% in the 1Q after dropping 9.6% in the 4Q. The swing reflected, at least in part, the impact of cutting the federal corporate tax rate to 21% from 35% starting January 1.
Can the Economy Really Grow at 3% or Better This Year?
More and more economists now expect the $1.5 trillion income tax cut package will spur faster economic growth the rest of this year and lift annual GDP growth to or above the Trump administration’s 3% target.
The unemployment rate fell in May to 3.8%, the lowest in 18 years, and jobless rates for African-Americans, Hispanics and Asians are at or near all-time lows. This suggests that wages will rise more the rest of this year, leaving consumers with more disposable income to spend.
Growth is also expected to get a boost from increased government spending. April data including retail sales, trade and industrial production suggest the economy regained speed early in the second quarter. For these reasons and others, we should be able to hit 3% or better.
The Atlanta Federal Reserve Bank’s GDPNow weekly forecasting model has it considerably better, currently at 4.8% as you can see below. That reading is well above the Blue Chip Economic Indicators consensus reading of around 3.2% at the beginning of May. My guess is we’re now somewhere in between these two forecasts and almost surely above 3%.
Now let’s get to our main topic today which is some really good news.
US Regains #1 Spot in Global Competitiveness Ranking
The question many are asking is, have President Trump’s policies had a big impact on the US economy and its competitiveness? The mainstream media won’t dare admit it, but I think the obvious answer is yes. Now, a new independent report based on hard data confirms that.
The longstanding annual report comes from the International Institute for Management Development (IMD) Competitiveness Center in Switzerland. Each year it ranks countries by 256 different variables to come up with its global economic competitiveness rankings.
For 2018, there was a big surprise: The US jumped three places to take over the top spot in global competitiveness – now ahead of Hong Kong, Singapore, the Netherlands and Switzerland – the previous leaders in recent years. That jump was based on the US “strength in economic performance and infrastructure,” ranking first in both areas.
Not surprisingly, I’ve seen almost nothing in the mainstream media about this outstanding accomplishment. The only place I ran across it was in Investor’s Business Daily last week. Frankly, this doesn’t surprise me given the growing strength in the US economy and President Trump’s successes in deregulating.
Since Trump took office, GDP growth has averaged 2.9%, up from 2% under President Obama. Consumer confidence indexes are at or near multi-year highs. Business investment is surging, and a big reason for that is that corporate taxes are low, thanks to Trump’s tax cuts. Inflation, at about 2%, remains under control. In general, things are getting better.
Meanwhile, Trump continues to slash away at the mountain of regulations that strangles the US economy, costing us collectively nearly $2 trillion a year. All of this has helped to fuel an economic renaissance of sorts. US households are $7.1 trillion richer since Trump entered office, thanks to rising stock prices and strong real estate markets.
How Candidate & President Trump’s Critics Got It So Wrong
Let’s compare this accomplishment in global competitiveness to what some of Mr. Trump’s fiercest critics wrote and said during the latter stages of the 2016 presidential campaign and since he took office.
Just last November, for instance, a blog post on the Economic Policy Institute’s website informed us that the “Republican tax plan will reduce American competitiveness.” With the latest jump to #1, you can’t miss it much worse than that!
Similarly, the liberal Brookings Institution opined in March of last year that “Trump’s ‘America First’ budget will leave the economy running behind.” Another huge miss.
Going back even further including the campaign, many economists and pundits were wrong — dead wrong — about Trumponomics. Yet to this day they can’t bring themselves to admit it. Imprisoned by the illogic of their own liberal ideology, they all saw not just failure, but disaster. They are still in denial.
Just one day after Trump won the election, The New York Times columnist and Nobel Prize winner Paul Krugman warned: “We are probably looking at a global recession, with no end in sight.” Krugman has been one of the most liberal ideologues in the media for years – and wrong over and over again.
Lawrence Summers, the former top economist for Presidents Bill Clinton and Barack Obama and an outspoken liberal icon said in the summer of 2016: “Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States.”
Just before the election in 2016, MSNBC host Steve Rattner, a former Obama administration official warned: “If the unlikely event happens and Trump wins, you will see a market crash of historic proportions.”
I could go on and on with wrongheaded predictions like these, but you get the point.
Recall that when Trump promised 3% growth, he was roundly criticized and even ridiculed for what many claimed was pie-in-the-sky political hyperbole. Some even said such growth would be impossible. Remember we were told by the left that 2% GDP growth was the “New Normal.”
While all those dire prognostications mentioned above proved false, the media continue to quote those who made them uncritically. It seems that among the media, those inside the Beltway and coastal elites, no distortion of Trump’s many successes ever gets corrected — only repeated. And facts are never acknowledged — only ignored or distorted over and over.
In closing, during the early run-up to the 2016 presidential election, I made it clear that Donald Trump was not my first choice for the GOP nomination. Yet when Trump defeated 16 other hopefuls and won the nomination, I threw my support behind him.
While I certainly don’t support some of his policy positions, especially on trade and tariffs, and some of his personal antics embarrass me occasionally, I believe he deserves ample credit for the improving economy and the US return to #1 in global competitiveness.
Whether President Trump should get most of the credit or not, the US is now more respected in many parts of the world than it was during the “apologist” years of the Obama administration. Let’s hope that continues!
All the best,
Gary D. Halbert
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