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Overall the economy is doing well.  For 2019 I would fully expect the third and fourth quarters to be around that 2% growth figure.  Yes, the press is waving all kinds of recession flags, however, they are way too premature.  Nothing in the current numbers reflect a GDP that will tank to a negative number for 2 consecutive quarters.  Manufacturing is at stall speed and will likely be in contraction in September if not slightly in August.  This accounts for 11% of the total economy.  Manufacturing alone will not cause a recession.  The level of excess capacity in manufacturing is sufficient enough to allow for a strong sales increase before new equipment or expanded real estate to be needed.  There is nothing in the demand side of manufacturing that indicates that the level of sales will increase anytime soon.  Europe and Asia are bordering on if not already in recessionary territory so demand for our manufacturing output is declining.  The strong dollar makes our products more expensive.  China is experiencing more issues economically as the US pulls manufacturing and purchasing away from them.  China may hang tough on the tariff issue in the hope of the election replacing President Trump for 2021, however, from the rhetoric of the likes of Elizabeth Warren and others, they may not find a friendly face if President Trump is voted out.  For now I see no end to the trade war and expect it to get worse before it gets better.  This means a bit of shared sacrifice within our economy.  If Congress could provide some assistance for the areas that are targeted for pain, agriculture being the highest pain point, it would be nice. 


The consumer continues to spend and do so strongly.  This is a good sign.  Wages are up, personal borrowing is down and consumer confidence is pretty good. Helping the consumer is the low interest rates which should continue for quite some time.  With the economy at 2% or so, inflation clearly under 2% and in some areas actually experiencing deflation, the consumer has spending power to keep the buying going.  Consumer spending accounts for 68% of our economy.  That alone keeps the recession fears at bay.  The low interest rates are putting cash in the pockets of consumers who have mortgage debt and revolving debt.  This helps the consumer every month and is keeping the mortgage industry growing in spite of housing sales that are barely limping along. 


Monetary policy, moving interest rates by the Fed, has run its course.  If Washington wants a higher GDP a stimulus infrastructure bill is required.  This should include a mix of tax cuts to put even more money in the pockets of the consumer as well as targeted PRODUCTIVE spending that would increase the efficiency of the economy.  Targeted spending would boost demand for manufacturing and bring them closing to investing in new equipment.  Transfer payments from one pocket to another such as welfare payments rarely if ever produce any bump to the GDP.  We need another project like the Interstate Hwy project to build demand as well as efficiency in the economy.


Last point that I will close with.  The stock market is disconnected with main street.  I have always found that my clients and contacts in the trenches have more core information and knowledge about the economy and what is going on earlier than any place else I look.  They have told me when the phone stops and starts ringing heralding changes in the economy.  They have given me more heads up about trade and what is happening with suppliers than any news source I have found.   When the last tax cut was being promoted I was strongly in favor of putting requirements on any funds that US Firms had overseas that they wanted repatriated.  I wrote often that any funds that come back to the shores tax free should be required to be used for expanding capital equipment for the firms.  This did not occur.  What did occur is that the firms bought back stock raising their stock prices and inflating the stock market.  The market zoomed up to new heights and with the limited levels of stock outstanding will not have a higher threshold.  The growth in the market far outstripped the economic growth.  The stock market is not a reliable measure for how the economy is doing or will do until the new normal is settled in at.


Thanks again for reading my thoughts over the years.  I hope they provided good information for you and your business as well as provided a small bit of humor sometimes.  Take Care.  Have a great week.



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