The headline number for second quarter GDP was horrific. The economy only grew by 1.2%, half of the expected 2.5% increase. The primary causes, inventory destocking that subtracted about 1.16% from GDP—the greatest decrease since 3Q11—and a 3.2% drop in residential and business spending. This 3.2% decline was the most in seven years.
Both data points suggest there is little confidence about tomorrow. Will the election begin to impact the markets and economic decisions?
Perhaps the only absolute statement to make about the 2016 is election is the unexpected has occurred.
Survey after survey indicates the greatest impediment/fear of business is government. Historically the greatest concern is the economy. Second quarter GDP reflects this fear as inventories and private fixed investment are measures of confidence. As stated above two of the major components of this sub heading is at the lowest level in five and seven years.
What candidate will be more business friendly? Hillary Clinton has presented a taxation plan; a plan in my view that will kill any remaining confidence or incentive to invest for the future. According to her website, she is proposing over $1 trillion in taxes over the next 10 years.
The major categories are a $350 billion increase in personal income tax where there is a 28% cap on itemized deductions. Another $275 billion will be derived by “undefined corporate income tax reform.” There is a $400 billion raised in the nebulous category of “fairness taxes” that includes a “fair share surcharge.”
There are soda taxes, exit taxes to discourage corporate inversions, increased capital gain taxes and stock transaction taxes.
Wow! If any of these taxes come to fruition confidence will be destroyed and a 1.2% growth rate will be viewed as robust.
Thirty five years ago when I was a political science major all my professors indicated the greatest way to ensure an electoral defeat was to propose raising taxes.
In all fairness, Donald Trump has not articulated a plan other than some broad based rhetorical comments.
Monetary policy has done all the heavy lifting since 2008. It is at it limits. Fiscal reform is desperately needed. This reform should be a reduction in taxes and less government interference. When asked what are the most inefficient organizations survey after survey indicate the Post Office and DMV. There is no such term as “Going Google” to describe some horrific event.
I ask if these surveys are accurate, why the increase in popularity of the progressive ideals? Is this not a direct contradiction?
Enough of the political rant and to be transparent, I am not voting for Donald Trump. I am voting against Hillary Clinton.
What will happen his week? Will Friday’s employment data confirm the FOMC’s view of a moderately expanding economy, the inverse of second quarter GDP?
There is little I can write about Friday’s market activity as all markets were essentially unchanged.
Last night the foreign markets were mixed. London was down 0.39%, Paris down 0.61% and Frankfurt up 0.05%. China was down 1.49%, Japan up 0.40%and Hang Sang up 1.09%
The Dow should open flat. Many interpreted Friday’s GDP data that an interest rate hike is not in the immediate future. The 10-year is off 6/32 to yield 1.49%.
