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The Elusive Growth Rate

CAMS Weekly View from the Corner – Week ending 1/26/2018

January 29, 2018

In the latter part of December we addressed the developing trend whereby we could see our nation’s GDP growth rate exceed the three percent level for more than two consecutive quarters.  It has been thirteen years – back to 2005 – since we have seen a three-plus percent GDP growth rate for three consecutive quarters.

On Friday the Commerce Department informed us that fourth quarter GDP growth was 2.6% resulting in the multi-quarter run of three-plus percent growth continuing to be elusive.

We need to see strong economic growth – on a consistent basis – to support our highly valued markets.  The three percent threshold does not represent an economic elixir in-and-of itself but it does represent a growth level that we have been unable to attain consistently for more than a decade.  To change this would clearly signal a different economic landscape.

Real GDP - 1.29.18

The above picture is a bar chart representing the annualized rate of growth of GDP per quarter for the last ten years.  The three far right bars represent 3.1% growth in the second quarter, 3.3% growth in the third quarter and now 2.6% growth in the fourth quarter.

Interestingly, this report reflects a stronger economy than the headline number suggests.  For the whole of 2017 economic growth reached 2.3% compared to 1.5% in 2016 representing acceleration on an annual basis.  In addition, specific to the fourth quarter report, Consumer Spending increased to a 3.8% rate which is the largest increase since 2015.

Imports (which subtract from the overall GDP growth rate being said products are produced outside of the U.S.) reached an all-time high exceeding the previous high point attained in 2014.  In light of the strength in Consumer Spending and the follow-on record Imports to meet this demand the actual GDP result was notably reduced by said Import levels net of exports.

All told, the U.S. economy remains on a solid growth track.  It will be important to see the 2018 growth level exceeding the 2017 level which would then put in an accelerating multi-year trend on a year-over-year basis.  Our highly valued markets inherently demand strengthening growth rates to support them.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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