Economic Outlook
By: Russ Colbert
Fall 2024 (Vol. 42, No. 3)
We recently put the 3rd quarter of the year behind us. The GDP for the quarter came in at 2.8% annual rate. That is impressive and primarily due to innovators and entrepreneurs in high-tech industries and elsewhere overcoming government obstacles pushing the economy forward. Both innovation and government spending deserve credit for the recent GDP growth. Most of the job growth over the past year has been in government and healthcare. We believe that most of the 3rd quarter GDP came from growth in consumer spending.
Although we had a light volume in auto sales, overall spending continued to increase, most likely due to continued government deficits. We estimate that spending on real goods and services also continued to increase. Business investment had an increase of around 2.0%, with gains in intellectual property pushing ahead, while commercial construction had a slight drop for the quarter. Residential construction fell for the quarter due to the higher lending rates and other obstacles in the construction business. As far as government spending goes, we had an increase in purchases of government goods and services. The trade deficit slightly shrank for the 3rd quarter as exports and imports both grew. Inventory accumulation was slightly faster in the 3rd quarter adding to the growth of the GDP. When we add it all up it is not too bad but does not mean the economy is over its problems. There are signs that show economic growth may be slowing. The U.S. is not in a recession at this point. We need to keep a close watch on the economy and be extremely careful with the future rate cuts or rate hikes going forward.
Inflation has been a huge problem that we have all had to deal with over the past three years. In our opinion too much government spending has added to the problem. The only thing that can increase inflation is excess money creation. Inflation is a decline in the purchasing power of a currency caused by central banks that inject more money into an economy than an economy really needs. Inflation isn’t an increase in the prices of goods and services, it is a decline in the value of money. Something else to think about. Who does the government borrow from? China, Japan, retirees, and banks all buy Treasury bonds. They buy them with dollars that they earned exporting to the US, working for incomes, or taking deposits. When they buy the debt or bonds of the US, they no longer have the cash, the government has it. It is a transfer of cash from one account to another. It does not increase spending. If China buys debt or bonds, they can’t buy imports with those same dollars. If banks buy debt or bonds they cannot make loans with the same money. What does cause inflation is when the Fed or central banks create new money, say with QE (Quantitative Easing) and it buys government debt or Treasury bonds, this injects new money into the economy. That is inflationary. It is the money creation causing the inflation, not the spending of the money.
We believe that government spending is too excessive and needs to be cut. The more the government taxes and borrows, the less the private sector must work with. This slows economic growth and holds back the production of goods and services. Fewer goods and services with the same monetary policy means higher prices we would have to pay than if the government were smaller. The main reason for a smaller government is to create more of a free market, reduce corruption, and allow workers to keep more of what they earn.
The election just took place, and the the Republicans won the White House - along with control of the House and Senate by a small margin. The stock market seems to favor this outcome, so far. The Republicans seem to favor economic and business growth. That would be positive for the U.S. economy and stock market. We shall see how things shape up in the future. Overall, so far it has been a positive year for the stock market and should continue to improve going forward. We need to be cautious as we invest in the stock and bond markets going forward. The stock market has come a long way in a short period of time. We will see how the new administration manages the U.S. government and events in the future. Hopefully things should improve financially for Americans going forward.
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.