For today’s bulletin, we take a look at the latest US economic-growth estimates from the US Department of Commerce. They show a better economy at the end of 2016 than first reported.
VALUATION WARNING: Overvalued stocks now make up 65.89% of our stocks assigned a valuation and 26.92% of those equities are calculated to be overvalued by 20% or more. ALL sectors are calculated to be overvalued.
The US Department of Commerce has released revised economic growth estimates for Q4 2016. The new figures show that growth in real GDP is now estimated to be 2.1% for the quarter–as compared to 3.1% for Q3 2016. That is a decent improvement over the initial figures–which showed growth of only 1.9%.
The data show that an “increase in consumer spending, private inventory investment, residential investment, business investment, and state and local government spending” drove growth, The increase was especially pronounced in consumer spending for services.
Inflation remained tame and within the Fed’s target range. Prices of goods and services increased 2% in Q4, and when you exclude energy and food the figure was even lower–coming in at 1.6%.
Corporate profits increased slower in Q4, with an increase of only 0.5% vs the Q3 figure of 5.8%. However, analysts note that the massive pollution-control device settlement with Volkswagen–where the company agreed to pay @ $5 billion–played a large role in reducing the overall profit numbers.
These revisions are of note to investors because they provide a clearer picture of the economy at a time of lower unemployment and an increased willingness on the part of the Fed to raise rates in order to head off potential inflation.
In addition, we have seen some pullback for the markets lately as the ongoing debacle in Washington related to the failed Trumpcare bill has led to a realization that the new administration may not be able to fulfill promises vis-à-vis tax reductions for corporations and the wealthy– as well as the proposed infrastructure repair and construction program.
Trump also promised to increase economic growth to 4%. That seems unlikely if the tax cuts and infrastructure plans–such as they may actually exist, no one has seen details yet–suffer the same fate in Congress as the first stab at health care reform.
Typically, Q1 growth is lower, and analysts expect the first figures of 2017 to show growth of @1%. How will the revised figures and the predicted slower Q1 growth effect the Fed’s plans for 2017?
We still believe it is a mistake for the Fed to raise rates aggressively. The labor market should be allowed to tighten more so that workers may finally share in the full fruits of the recovery. Long-term data consistently shows that workers have benefited little in real-wage terms since the early 90s. This latest data from Commerce does little to change our opinion.
ValuEngine.com is an Independent Research Provider (IRP), producing buy/hold/sell recommendations, target price, and valuations on over 5,000 US and Canadian equities every trading day.
Contact ValuEngine at (800) 381-5576 or support@valuengine.com
Visit www.ValuEngine.com for more information
ValuEngine Capital Management LLC is a Registered Investment Advisory (RIA) firm that trades client accounts using ValuENgine’s award-winning stock research.
Contact ValuEngine Capital at info@valuenginecapital.com
Visit www.ValuEngineCapital.com for more information