TRI USA GDP Targets (2011/9/26)
|2017Q4||end of cycle|
Dec 26 2011 delayed FreeVenue public release of Sept 26th MemberVenue guidance ~ The TRENDLines Recession Indicator continues to project a collapsing USA economic Recovery, in line with waning fiscal stimulus & the wrap-up of QE2 (quantitative easing). The September (Q3) Real GDP growth rate is gauged at 1.7%, down from 2.1% in August. The TRI's leading indicators are presently projecting 1.7% GDP in Q4 & 2.3% for 2012Q1.
BEA's announced second estimate for Q2 (June) Real GDP was 1.0% (vs 2.7% TRI). The recent July release by BEA was its annual re-benchmark of former years' data. Some quarters were revised by as much as 2.1% (mostly down) and brought GDP much more in line with TRI figures!
Today's outlook further downgrades Q3 as the effects of this Spring's high petroleum prices continue to permeate thru the economy ... especially the auto sector. TRI has a fuzzy horizon of 24 quarters. Q4/Q1 should display a temporary rebound as Gasoline Pump Price dips back below the critical $3.34/gallon ($90/barrel crude) threshold allowing the post-Recession rebound in auto manufacturing/sales to resume. The growth rate is foreseen to trough @ 1.5% in October 2012.
Under the present toxic political environment, TRI is projecting a GDP crest of only 3.9% (2014Q4). This implies an absence of the 6% cresting seen in recent business cycles. Monetary Policy actions by the Federal Reserve & the Treasury Secretary's guidance to Congress with respect to Fiscal Policy will ultimately determine whether the current cycle's contraction bottom in 2017Q4 will be a hard or soft landing, but at this time the latter is indicated. The model is forecasting 5-yr mortgage rates to rise 2.0% as the business cycle attains maximum momentum in 2015.
Past charting reveals a distinct profile has been developing since Nov-2010 within our medium-term outlook and I would have been remiss in not speculating over past months that both commerce & consumers appear to be in a holding pattern anticipating the demise of Barack Hussein Obama. Fate has dealt America's celebrity President a difficult hand considering his lack of executive experience. Mismanagement by Congress & the previous Administration present Obama with a paradox. The circumstances of a Balance Sheet Recession required massive targeted fiscal stimulus best aimed at infrastructure since families and business are mostly deleveraging. Tax cuts & payroll deduction only contribute a renewed savings mode. Record low interest rates don't help when borrowing demand evaporates.
Unfortunately, failure by Washington to prudently raise taxes to accompany record spending since the 2001 Recession has left the Federal Gov't with little leeway for further injections after their 2009 strategic fiscal stimulus errors. Back in mid-2008, Hillary Clinton warned about the inappropriateness of on-the-job-training for the nation's top job. Current Debt/GDP & Deficit/GDP ratios are 98% & 9% respectively. Whether one contemplates further borrowing or quantitative easing (QE3), the cost will be further USDollar devaluation, subsequent imported Inflation and more downgrades of the federal debt. Conversely, status quo prolongs the 16.2% Real Unemployment Rate.
Headwinds ~ TRENDLines estimates the cumulative effect of several quarters of high petroleum costs reduced September's GDP growth rate by o.7% ... just a whisker below this factor's record damping set back in Oct-2008. Ironically, the triple-digit crude prices were for the most part the USA's own making...
USDollar ~ In the realm of unintended consequences, a plethora of avoidable events has thoroughly disappointed the international investment community over the years. There was the aforementioned refusal by successive Congresses to address the long-term structural deficits; the Dec-2010 extension of the Bush-era Tax Cuts; the Obama Administration's decision to unveil the record 2012 $1.5 trillion Deficit Budget (9.7% of GDP) and its 97-0 Senate defeat; and the inability to pass the 2011 Budget on a timely basis as well and the related threatened Gov't shutdown in April. If not enuf, the looming Debt Wall (as illustrated by our Debt Wall) was given widespread media scrutiny via the required debt limit increase. The Debt Ceiling review by Congress forms part of the USA's checks & balances to deal with Budgets that fail to meet reality or Administrations that choose to operate via continuing resolutions and appropriations in lieu of the conventional Budget process. This string of fiscal management episodes has caused a resumption of the secular decline of the USDollar.
This debasement commenced in January 2002, was truncated by the safe haven activities in 2008, but the latest resurgence is today responsible for a $21/barrel component of USA's avg contract price of crude oil ($94 in Sept). This factor was a mere $1 on the day of Barack Hussein Obama's inauguration. Upon breaching $90/barrel, Crude Price passed a definitive Crude-Cost/GDP ratio which has a history (1980/1990/2007) of inducing a collapse of Light Vehicle Sales (see our Gas Pump model). The present episode began in early February ($3.26/gallon) and was responsible for sales retreating to a 11.5-million units/yr pace in June from $13.2 mu/yr in February.
It is unlikely auto manufacturing will pass the 14-mu/yr pace 'til Crude Price gets back below $90/barrel. The Barrel Meter model is currently predicting Crude Price to enjoy a brief flirtation with $62/barrel in May 2012. On the bright side, the secular decline of the Dollar led to a resurgence in May 2011 of new records for Exported goods.
Unemployment Rate ~ The present trajectory should yield an Unemployment Rate of 8.7% by Election Day.
Debt Rating ~ The USA's AAA sovereign bond rating was rightfully cut by Egan-Jones in July (S&P in Aug). Germany, Canada, Australia, Switzerland and others have long had better fundamentals. Assuming extension of the Bush-era tax cuts and failing mitigation of scheduled Deficits, the Debt Wall projects the USA will be downgraded to a "B" rating upon reaching a 110% Debt/GDP ratio in 2016. Similarly, a potential Treasuries Crisis will ensue upon assessment of a "C" rating on 10yr/30yr instruments in 2021 upon the Debt/GDP & Deficit/GDP ratios attaining 123% & 5.9% respectively. For some context on the Tea-Party inspired conditions upon raising of the Debt Ceiling, a $2 trillion expenditure cutback still results in the Federal Debt rising to $21 trillion in 2021 (from $14 tri toady).