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Economic Outlook


By: Russ Colbert
Fall 2022 (Vol. 40, No. 3)

We continue to receive economic reports that further undermine earlier reports this year that we are already in a recession. These reports lead us to believe inflation could be around longer than expected.

We are aware that the reports on GDP growth for the first two quarters of the year were negative, which is the definition most economists use to determine a recession. We are also aware that GDP reports will be revised once a year for the next few years and believe they may show growth. The reason we feel this may be the case is because the unemployment rate has dropped, payrolls have grown at a very fast pace, and industrial production continues to climb. We currently see 3rd quarter GDP coming in around a 2% annual rate or better.

We feel the recession will still most likely come, but not until the second half of 2023. It could possibly show up in the first half of 2023. There might be some relief on the way after the November elections, should we elect more politicians that want to try to find a way to bring down inflation by bringing more oil and gas on-line for U.S. consumption. Inflation remains ridiculously high. The most cost-efficient way to fight it would be for the U.S. to produce more oil, and natural gas. This would help bring down the prices of fuel and oil based products over time, eventually helping everyone and the economy. If the Federal Reserve can continue to keep the M2 measure of money supply growing at 1.5%, the annual target rate that they have used so far this year, we feel inflation will eventually slow down and decrease. Rents are a large part of the consumer inflation measure and have risen dramatically over the past few years.

For some good news, payrolls are up at an average monthly pace of 420,000 this year. The ISM Manufacturing Index came in at 56.7% for September showing a good performance. Auto sales were softer coming in at a 13.5 million annual rate. The fastest pace since April. When you put, it all together it supports the third quarter GDP of 2.0% or better mentioned earlier . Real retail sales outside of the auto sector declined at a 1.4% annual rate in 3rd quarter, while sales of autos and light trucks dropped at a 0.4% rate.

However, it looks like real services, which makes up most of consumer spending, should be up at a solid pace. When you add it all together, we estimate real consumer spending on goods and services, combined, increased at a modest 1.0% rate, adding .07% to the 3rd quarter GDP growth. Business investments had growth areas including business equipment investment, and intellectual property that will add around 0.7% points to real GDP growth for 3rd quarter.

Higher mortgage rates have slowed down the Real Estate Market in existing home sales and new construction sales that will cause that segment of third quarter GDP to come in negative. Government purchases of goods and services will represent a positive boost for the 3rd quarter. Concerning Trade, we are close to all-time highs, while imports have declined significantly due to currently having to too much inventory on hand and having to cut back on foreign purchases. This means a smaller trade deficit.

When you put it all together it looks like a good 3rd quarter GDP number coming compared to what we have seen the first half of this year. Again, there is some good news around the corner, but we need certain positive changes to occur going forward into the next year to reverse the inflation problem and soften or even avoid, if possible, the recession everyone keeps hearing about. The Federal Reserve will continue to raise rates to fight the inflation problem until we see improvement in that area. Let’s hope we start to see some good news in that area soon.

If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.

Russ Colbert
Senior Portfolio Manager
1-888-878-0001


Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.