The “R” word went viral in OctobeR, NovembeR, and DecembeR last year as traders extrapolated 2018’s economic pattern into 2019.
Economic output in the U.S. grew at a torrid 4.2% annual rate in the second quarter of 2018. It slowed to a 3.4% growth rate in the third quarter and slowed further to a 2.2% in the fourth quarter.
I would bet that my third grader can spot the pattern here:
- 2% minus 0.8% is 3.4%
- 4% minus 1.2% is 2.2%
Once we recognize the pattern we can extrapolate into the future:
- 2% minus 1.6% is 0.6%
- 6% minus 2.0% is economically ugly
This simplified exercise in extrapolation resulted in a market meltdown in the months ending in R.
But the economy is not as prone to predictable patterns as traders would like to think. Slowing growth does not always result in a recession. Sometimes slowing growth simply stops slowing and rumors of recessions recede.
It certainly appears that when the Bureau of Economic Analysis releases the first of three Gross Domestic Product estimates on Friday, April 26, that the recessionary economic growth pattern will be broken. Most economists expect a growth rate comfortably exceeding the pattern’s 0.6% “prediction.”
Does that mean our economy is now recession-proof? Absolutely not. There will undoubtedly be a real recession at some point in the future.
We also believe there is a high likelihood that the number of impending recession rumors will exceed the actual number of recessions. However, the very last one of those many rumors will in fact be correct and precede the next recession.
Whether we are experiencing an economy that is roaring or receding, our passion is to help you confidently create and adjust your financial plan and portfolio as life unfolds. We recommend using our Portfolio GPSTM process instead of relying on rumors to guide your way.
Quote of the week: John Kenneth Galbraith: “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
The English language fascinates me. On Monday I heard the same phrase used to reflect two entirely different sentiments.
On Monday afternoon the phrase “on fire” rang throughout the world as millions watched a tragedy unfold at Notre Dame in Paris. Hundreds of firefighters responded to the scene and desperately made every effort to save an 850-year-old landmark that was previously saved from disrepair by Napoleon.
Unless you live in Massachusetts or Maine the federal tax filing finish line falls just 5 days from now on April 15. Either you must file your taxes by April 15 or file an extension which permits you to delay the inevitable until October 15 — as long as you pay what you think you owe now.