As we are analyzing the market downturn, we hear a lot of talk on tariffs and politics, but, we want to put some of the focus on the rising dollar. The issue with the rising dollar is that it’s putting pressure on corporations doing business overseas and making it more expensive to do so. It’s also making U.S. products more expensive and not as competitive as products coming from overseas. In post-earnings conference calls, we are hearing CEOs say that the rising dollar is one the biggest concerns moving forward. It has risen 2% this past month and will remain a concern for U.S. corporations heading into next year.
We told everyone last week that we were waiting on the third quarter GDP number that came out on Friday because it’s a good indicator of what is going on behind the scenes. From a political standpoint, we knew it would be similar to volleyball in that one side is implying things are great while the other side implying things are terrible. However, it provided some beneficial data to both sides, some tricks and treats so to speak. The net export data showed -1.8%. The GDP grew at 3.5%, which was great, but that -1.8% was a big hit. This GDP number is better than we have had in years, on average, and it beat expectations, but, underneath the hood there are some negatives such as net business investments. Companies investing in their workers is a net business investment. For example, if a worker is given a new computer they would probably work faster and more efficiently than they could with an older machine running an older program. Companies were investing heavily to make their employees more productive in the first half of the year evidence of 11% invested in capital expenditures, which also helps the economy to grow. In the third quarter that number only grew at 0.8%, which could be revised at a later date. If companies aren’t investing in their workers, it’s possible that they are concerned about the strength of the dollar or the rising interest rates causing things to be more expensive to purchase.
With the holidays coming up we are keeping a close eye on the consumer trends. The U.S. personal income numbers came out this morning and, as reported, only showed a gain of 0.2%, which was half of the expected 0.4%. This is the smallest gain in personal income since June of 2017. This particular number is important because spending season and the holidays are coming and up and according to what has been reported, people are not saving as much as you would normally see for this time of year. Other evidence of this is that the personal savings rate came down 6.2%. This normally affects wages as well as corporate earnings. Typically, people make money and either save it or spend it, so if they are making less, then they are spending and saving less. We want a strong end of the year and with that we need a strong consumer.
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