Second quarter 2016 grew at an annual rate of just 1.2% -- well below expectations of 2.6% -- thanks to continued weakness in business investment.

That alone should give the Federal Reserve reason to rethink raising rates anytime soon.

Even after the U.S. has given businesses a great deal of tools to drive such investment, including borrowing rates at near-zero interest rate and higher credit availability, businesses are not spending as robustly as they once did.

In fact, many have taken a very cautious approach to investing in expansion for years now… 

Expenditures on new equipment for example fell 3.5% in the second quarter, and is now down about 2% over the last year.  Spending on structures is down 7.9% in the quarter and down 7% over the last year. 

That tells us companies do not see a great reason to expand at the moment. They lack confidence in steady, sustainable growth.

Its no wonder U.S. productivity has slipped.

Others are dealing with higher than normal inventory–to-sales ratios, too.  In May, inventories rose 0.2% after a 0.1% gain in April, for instance.

Wages have also been stagnant for years.  The other economic drag is housing, with residential investments dropping 6.1% in the last quarter. 

As a result, economic growth is now tracking around 1% for 2016 -- the weakest start to a year since 2011.   

And the average annual growth rate is a measly 2.1% since the end of the Recession in 2009 -- the worst we’ve seen since 1949. 

The Only Reason We’re Not Crashing

The economic numbers would have been much worse, if not for U.S. consumers – who are increasing their level of spending.

Consumer spending jumped 0.4% in June after a similar gain in May – evidence that an improving jobs market and lower oil prices are finally having a positive impact on consumer confidence and spending.  In fact, for the first six months of the year, total retail sales were up 3.1% year over year.

While volatility amid slower growth may persist, we will continue to find stock bargains.  Look for more information on what’s happening in the next issue of The Cheap Investor later this month.

Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment