July 24, 2019
The United States and China are the 2 economic superpowers in the world today. Combined, the US economy ($21 trillion in size) and the Chinese economy ($14 trillion in size) make up 56% of global business, remarkable given that there are 193 countries worldwide. The Chinese economy grew by +6.2% in the 2Q 2019, i.e., year-over-year growth rate, the lowest growth rate reported by China based on records kept in Beijing since March 1992. The last time the United States reported a growth rate of at least +6.2% was in the 3Q 2003. Over the last 30 years, i.e., 120 quarters, the United States has reached or exceeded a +6.2% growth rate in only 6 quarters or just 5% of the time (source: South China Morning Post).
It sounds counterintuitive to the American consumer, but the Federal Reserve is convinced that the United States needs higher inflation to keep our 10-year economic expansion going strong. The Fed believes that low inflation encourages consumers to put off purchases today once they are convinced that low product prices will be around for an extended period. Equally confusing is the Fed’s logic on how to create higher inflation. They will lower interest rates, possibly as soon as next week, in hopes of “heating up” spending by Americans, likely to result in higher inflation as the increased demand for goods and services drives prices higher (source: BTN Research).
The House begins its 6-week summer vacation this upcoming Friday (7/26/19) while the Senate will start its 5-week recess a week later (8/02/19). Increasing the nation’s debt ceiling – currently at $22 trillion – is likely the last item both chambers will deal with before heading home for vacation (source: Congress).
Notable Numbers for the Week:
1. ONE WAY TO USE THEIR MONEY - A record $806 billion of stock buybacks took place in the USA in 2018. Another $205 billion of buybacks occurred in the 1st quarter 2019 (source: S&P Dow Jones).
2. WORLD’S BIGGEST - As of 3/31/19, the US economy was $21 trillion in size. As of 3/31/69, i.e., 50 years ago, the US economy was $1 trillion in size (source: Commerce Department).
3. SHIFTING AWAY FROM CHINA - US manufacturers have moved some of their supply chains away from China in 2019, increasing imports from Taiwan (up +22% YTD through 5/31/19), from India (up +12% YTD) and from South Korea (up +12% YTD) (source: Commerce Department).
4. NO COMMUTE NECESSARY - 24% of American workers did some of their work or all their work from home in 2018 (source: Department of Labor).