In recent updates from various economic outlets, several concerning trends have surfaced regarding the US economy and global markets:
- ● US industrial production declined in March, indicating a potentially weak growth for Q1 GDP | Reuters
- ● Initial consumer sentiment readings for April reveal a decrease in confidence | MarketWatch
- ● Manufacturing in New York showed signs of expansion in April | AP
- ● China reported its slowest quarterly growth at 1.1% in Q1 | MNI
- ● Oil prices tumbled as producers couldn’t reach an agreement on output limits | BBC
- ● Brazil’s lower house has taken steps towards impeachment of President Rousseff | CNN
- ● Global economies are facing slower growth, increased leverage, and heightened risks | Econobrowser
● A Violent World: Modern Threats to Economic Stability
Written by Jean-Hervé Lorenzi and Mickaël Berrebi
Publisher’s Overview (Palgrave Macmillan)
In the 1990s, Francis Fukuyama proclaimed the “end of history,” implying a world free from conflict. However, the events of the 2000s revealed this notion to be mere fantasy. The authors analyze six critical constraints that are poised to shape the future of the global economy. Three of these constraints are emerging: an aging population, stagnation in technological progress, and dwindling savings. The remaining three constraints—rising inequality, the massive globalization of industries, and unrestrained financialization—have been present for longer. They argue that, similar to tectonic activity, the tensions created by these forces are likely to heighten political and social conflicts in years to come. The authors contend that authorities may struggle to mitigate the impacts of impending economic shocks, posing the question: Are we prepared to face the upheaval and violence that may arise?
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Manufacturing output in the United States experienced a decline for the second consecutive month in March, as highlighted by the latest report from the Federal Reserve. This downturn significantly affected overall industrial production, which fell by 0.6% last month. Consequently, the yearly trend for industrial activity now appears even weaker. These developments cast doubt on the emerging signs of recovery in manufacturing as suggested by sentiment data.
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Scott Sumner cautions against the futility of trying to predict the next recession. The poor track record of such forecasts lends credence to his argument. “When someone claims to have accurately predicted a recession, I find my assessment of that individual decreases,” notes the economist from the Mercatus Center at George Mason University. “Economists should focus on preventing recessions rather than attempting to predict them.” While the latter task may prove to be more difficult, Sumner believes that “the effort to forecast recessions undermines the perception of economics as a discipline.” This is because “such predictions mislead the public into thinking that economists are expected to forecast economic downturns, granting undue credit to those who happen to get it right.”
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● US Core Consumer Prices saw a decline in March, indicating temporary price changes | Bloomberg
● US Jobless Claims fell as the labor market remains robust | WSJ
● The Consumer Comfort Index in the US increased for the first time in a month | Bloomberg
● The highest number of Americans in 15 years feel that their tax bills are too high | Gallup
● China’s growth has slightly slowed in Q1 amidst stabilization signs | RTT
● An earthquake in Japan has resulted in nine casualties, with more aftershocks anticipated | CNN
The latest data shows that new unemployment claims have dropped by 13,000, bringing the total to a seasonally adjusted 253,000 – the lowest level since the Watergate scandal rocked the Nixon administration | Department of Labor. This positive trend suggests that yesterday’s unexpected decline in retail sales for March may be viewed as an anomaly.
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The rationale for anticipating a small-cap equity premium appears tenuous. However, should we pivot towards investing in small-cap value stocks? A cautious affirmation is warranted, based on the analysis of relevant Russell indexes.
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● US retail sales declined in March, marking a lackluster end to Q1 | MarketWatch
● A small drop in US business inventories in March, coupled with further weakening sales | Reuters
● The Fed’s Beige Book highlights a strong job market that is leading to wage increases | WSJ
● The GDPNow forecast for Q1 nudged upward to a still-weak growth rate of 0.3% | Atlanta Fed
● If you’re concerned about the GDPNow forecast, check out the NY Fed’s new ‘Nowcast’ | Barron’s
● Just Released: An overview of the FRBNY Nowcast | NY Fed
● Eurozone March inflation has been revised to zero | RTT
Consumer spending in the retail sector saw a decrease of 0.3% in March, which fell significantly short of expectations for a slight increase, according to a report from the US Census Bureau . This single statistic, while it must be taken in context, sends a troubling signal, especially since the drop in sales last month severely impacted the year-over-year trend.
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A previous article highlighted the dismal performance of value investing over the last decade, yet the outlook for the small-cap premium in the US stock market appears even worse. While there have been phases when small-cap stocks outperformed large-cap stocks, the strategy has not yielded positive results as a buy-and-hold option since 1980, according to Russell indexes. Exploring opportunities in small-cap value stocks may present solutions, but the conventional approach based on Russell benchmarks has faced significant challenges.
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In summary, the recent economic indicators paint a mixed picture of growth and challenges. While some sectors show positive signs, others indicate a need for caution. As analysts and economists continue to assess these trends, staying informed will be essential for making sound decisions moving forward.
