Market Beat: Global economic outlook not as bright as America’s
October 11, 2014
Recently, the IMF (International Monetary Fund) cut its outlook for global economic growth next year amid growing geopolitical risks. They're currently forecasting growth for 2015 at 3.8 percent which was lowered from a 4 percent estimate in July.
The US economy continues to grow at a moderate rate. The unemployment rate is down to 5.9 percent, and this is the first time it has been under 6 percent since 2008. Job openings are at cyclical highs.
The housing market has been holding up fairly well, existing home sales are down somewhat, and housing prices have flattened, but new home sales are up significantly.
Industrial production has been rising, and capacity utilization is near its ceiling. Once capacity utilization is over 80 percent, it requires the use of overtime and less efficient assets.
The rapid advances in technology we've seen in recent years has been causing things to become obsolete faster and as a result the peaks in capacity utilization have been lowering.
The consumer has been doing OK; consumer debt levels are down to 1999 levels and consumer confidence has been increasing until last month when it registered a decline due to geopolitical tensions.
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Falling energy prices have helped consumers. One billion dollars is put into consumers' pockets over the course of a year for every 1 cent drop in the price of unleaded gasoline. Vehicle sales hit a record in August at a 17.9 million unit annualized rate.
GDP, gross domestic product, grew at a 4.6 percent annualized rate in the second quarter, and the third quarter that was just concluded is likely to come in about 3.5 percent, which is a strong rate of growth for a mature industrial economy.
Inflation as measured by the CPI (Consumer Price Index) has been very tame. The reading for August was just 1.52 percent, well below the Fed's target rate of 2 percent.
The global outlook isn't quite as bright. Brazil and much of South America are already in recession. China has been slowing down, and both Europe and Japan could be headed toward recession.
Europe's leading economic indicators dropped sharply in August and that is the third straight decline. That means that the major foreign banks are likely to do more money printing and as QE (Quantitative Easing — money printing) ends in the US, our dollar should get even stronger.
The strong dollar will attract more funds into our markets, and the combination of a strong dollar and weak global economies should be bearish for precious metals.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.