As if the Fed needed another reason to cut rates...however, they got it today. Gross Domestic Product (GDP) numbers came in at a paltry 0.6% vs. 1.2% expected. This is a far cry from 4th quarter's 4.9%.
So the economy is about to stall and why not. The manufacturing sector is in a "recessionary" contraction according to the latest ISM numbers. Consumer spending is falling off as shown by the horrible Retail Sales numbers. Housing is in a recession. So it won't be long before we get our first negative GDP number. If we get two of those in a row, then the economy is technically in a recession at that point. The only problem is that these numbers are backward looking. So by the time that you get your first negative GDP reading, you're probably already in a recession on the present quarter that wouldn't be reported on by then.
So since GDP lags, you find out that you entered a recession in "hind sight".
I've been seeing more huge companies doing layoffs and not hiring. So why don't I believe those ADP employment numbers (130,000 people hired)that came out this morning? Hmmmm..... Well, when your economy is about to stall, why do you need to go on a hiring spree as a nation? I don't think you do. The Non-Farm Payroll numbers of 65,000 could be exceeded, I think the overall trend of employment will continue to head downward over time. It also wouldn't be hard for them to revise last month's numbers upward a bit from 18,000.
However, that would still not be a bullish sign. Because the trend of employment has been going down for years now. It's just that we finally got below 100k hired which is where most people (and traders) start to wake up and pay attention.
Three numbers that we really need to see improvement in are the housing numbers (particularly Existing Home Sales), the Non-Farm Payrolls and the Unemployment rate (lower of course).
I expect the unemployment rate to tick up overall in the upcoming months. Typically, when unemployment starts to rise, it doesn't stop in the short term.
This is why Congress is sweating bullets and trying to (for once) work together on getting a bill passed and out the door to put checks in people's hands so they can spend and boost the economy. For they know that this (along with the Fed's rate cuts) will help increase employment over time.
Voters aren't too happy when they are out of a job....and politicians notice. There are a lot of issues that Americans care about...but if they don't have a job...that becomes priority number 1 at that point.
So look for things to stay soft in the near term. Then as these checks are received and spent and rate cuts have time to take effect, the economy will slowly improve. But don't be fooled...this is not a short term process. It takes time for all of this to take place. It won't happen nearly as fast and many would like to see (including myself).
Sean Hyman
Editor/Trader
www.money-trader.com
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