U.S. economy: A one-trick pony

The consumer-related categories have been the only engines really driving economic growth, writes Morningstar's Bob Johnson.

Robert Johnson, CFA 2 May, 2016 | 5:00PM

It wasn't a great week for world markets, with most equity markets down 0.2% to 2.0%, and bond yields down also, with the 10-year U.S. Treasury yield sliding to 1.82% from 1.89%. These moves seemed to be a result of an uninspiring corporate earnings season and soft economic news out of the U.S. Poor Apple AAPL results and down iPhone sales certainly didn't help technology stocks. Oddly, commodities, which usually move markets in the same direction, had a great week, with commodities, gold and oil all up over 3%. We didn't see any real news on that front. Nevertheless, some decent weekly oil price gains added up to a full 20% jump in oil prices in April. Good news for oil companies and equipment producers--not such great news for consumers.

Central banks were in the spotlight again this week, too. The Bank of Japan refused to provide more monetary easing at its most recent meeting, and the U.S. Federal Reserve managed to not say much at all at this week's meeting. The Japanese announcement had meaningful market impact and caused the U.S. dollar to weaken further. Unfortunately, central bankers are having increasing difficulty fighting slowing demographic growth pressures with easy money policies. Also, with so many countries adopting similar policies, it hasn't provided some of the currency depreciation benefits that helped earlier adopters of easy money policies.

The GDP report was about on target with recent whispers, with sequential, annualized growth of just 0.5% in the March quarter. That extended the run of poorly performing first quarters to potentially four of the last five years. Some of the forecasts from the Atlanta Fed helped cushion expectations. Its exceptionally detailed projections, more of a compilation of already-released data than a from-scratch forecast, were awfully close to the mark, with an overall forecast of 0.6% growth versus the actual 0.5% result. The category data was almost as equally correct. Year-over-year GDP growth of 1.9% was much more benign. Still, as some of this recovery's rocket engines fade (shale oil, autos, smartphones), even year-over-year growth has softened some. We are holding fast to our full-year forecast of 2.0% to 2.5% growth, with the high end of that range looking to be at risk.

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

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