Not to be a buzzkill … but it’s not time to pop the champagne just yet.
I know, I know … the media is having a party in the streets over the latest gross domestic product (GDP) number. After all, U.S. GDP growth surged 4.1% in the second quarter — up 2.2% from the first three months.
That’s the fastest pace in almost four years! The economy appears to be booming.
And it’s all thanks to government spending (at both state and federal levels), the recent export boom and consumer spending, which popped to a 4% annual pace of growth. (I feel like I contributed to a large portion of that number on Amazon Prime day, by the way.)
So why shouldn’t the media exclaim these numbers from the rooftops like a man who just realized he’s in love?
Well, here are a few reasons:
- GDP revisions are a part of life. History tells us there’s a 1-in-4 chance that the U.S. economy really grew by over 5.2% (the number we know plus 1.1 percentage points). Which is great. But it could also fall the other way. There’s a 1-in-4 chance that it grew by less than 3.6% (the number we know minus 0.5 percentage points).
See, the original estimates are often off simply because there’s a lot of missing data. It makes sense. When the Commerce Department releases the original GDP number, it only has access to about 25% of the data it needs. So its analysts fill in the gaps with trend analysis.
As more numbers flow in, the estimate gets adjusted until we have our actual GDP growth. That means we shouldn’t hang our hats on this first estimate.
It will almost certainly change.
- This growth is unsustainable. I know that no matter what, this is nice news. Even with revisions, the United States’ economic engine is chugging along in a promising way — at least at the surface level.
That’s where my second point of caution comes into play: Growth at this level just isn’t sustainable.
Keep in mind that this second-quarter number was propped up by recent tax cuts and the surge in exports that came from ever-increasing trade tensions. Foreign buyers were gobbling up U.S. products, such as soybeans, in anticipation of their governments imposing tariffs. So that particular boost was almost certainly temporary.
- Housing — an economic bellwether — is weak. Friday’s report had a big black spot: the housing sector. Residential investment — which includes home construction — fell once again. This is the second time in a row, and the fourth fall in the past five quarters.
Taken altogether, this is starting to look like the worst slowdown in years.
Just look at California to see what I mean. Home sales plummeted to their lowest monthly rate in four years. Sales for new and existing homes fell 11.8% year-over-year. Meanwhile, prices rocketed to a record high. California, one of the largest housing markets in the U.S., has often indicated a trend throughout the rest of the country.
So, what does this all mean for you? Well…
Here’s How to Win During Uncertain Economic Times
I bring up these points because I want you to start being a little more cautious over the long term.
Sure, stocks will likely celebrate this GDP growth over the next few months. It’s perfectly fine to be aggressive during this period.
But just make sure you’re starting to look to the future. Make sure you’re not getting swept up in the euphoria of it all, and that you have a plan in place for when the party ends.
For those who appreciate a little more guidance, start following a trading strategy you trust — one that has a history of prospering no matter what the market does.
To start, I suggest looking into Michael Carr’s “hidden velocity” strategy.
Over the past two months, it’s grabbed an average gain of about 30% on trades in just four weeks. Those results include a recent 286% gain, and a 50% gain that came in just one day.
If we look at the S&P 500 Index’s average monthly gain over the past two months, we see a paltry 1.9% rise. So anyone following Michael’s system is doing 15 times better than the market right now.
And as the economy slows and the market falters (which it will), his momentum strategy will take advantage of it too.
To learn how Michael does it, just click here to register for his free webinar.
Catch you next week.
Managing Editor, Banyan Hill Publishing
Editor’s Note: Chartered Market Technician Michael Carr is finally ready to reveal his most controversial investing secret after 10 years of keeping it quiet. This method has generated gains of 104% … 110% … 155% … 157% … and 189%, each in less than eight weeks. To find out how he does it, click here to register for Michael’s FREE webinar.