This article appeared in the New Haven Register on September 1, 2019.
Growth in the U.S. economy slowed significantly in the second quarter as some economists raised alarm bells by warning of a coming recession. However, a general slowdown had been expected, and a recession will not be surprising after the longest economic expansion in U.S. history.
A survey by the National Association for Business Economics in late July showed that 38 percent of 226 economists surveyed expect a recession to start in 2020, while 34 percent expect a recession to hit in 2021. As the White House insisted no recession is imminent, the media portrayed the survey as a dire warning. Yet after 10 years of steady growth, a correction or recession is to be expected.
The growth rate in the nation’s Gross Domestic Product (GDP) fell to 2.1 percent last quarter, a significant drop from 3.1 percent in the first quarter. Growth in personal income also slowed, to 2.5 percent in the second quarter compared with 4.4 percent in the first quarter, according to the U.S. Bureau of Economic Analysis.
The U.S. Department of Commerce reported retail trade sales rose 0.6 percent in July over June, up 3.4 percent from July 2018. Sales for non-store retailers rose 16 percent over July 2018. An advance estimate of retail and food services sales growth in July was 0.7 percent, up from 0.3 percent in June.
The Bureau of Labor Statistics reported the nation’s unemployment rate remained steady at 3.7 percent in July. Nonfarm employment rose by 164,000 people, and the number of unemployed people was unchanged at 6.1 million.
The Institute for Supply Management reported a 0.5 percent decline in its monthly Manufacturing Purchasing Managers’ Index, to 51.2. The fact that the reading remained above 50 percent means manufacturing is still expanding, and July marked the 123rd straight month of expansion.
The U.S. stock market was volatile in the second quarter, with a major pullback in May followed by record highs. Much of that volatility was tied to uncertainty over the ongoing trade dispute between the U.S. and China.
Total returns for the Dow Jones Industrial Average were 3.21 percent in the second quarter and 15.4 percent in the first half of 2019; the S&P 500 Index notched gains of 4.3 percent in the second quarter and 18.54 percent in the first half; the Nasdaq Composite Index gained 3.58 percent in the second quarter and 20.66 percent in the first half; and the Russell 2000 Index returned 2.1 percent in the second quarter and 16.98 percent in the first half.
Worldwide, both the World Bank and the IMF lowered their previous forecasts for global growth. In June, the World Bank lowered its forecast for 2019 from 2.9 percent (forecast in January) to 2.6 percent, compared with 3 percent in 2018. Analysts cited rising trade barriers, sluggish investment in developing countries, and slowdowns in some major economies.
In July, the International Monetary Fund lowered its forecast for global economic growth in 2019 from 3.3 percent to 3.2 percent. That compares with growth of 3.6 percent in 2018. But the IMF forecast a return to robust global activity in 2020, predicting the growth rate will rise to 3.5 percent.
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor.