Over the past few years, we’ve seen a disturbing trend in U.S. economic growth estimates versus actual performance. It’s one step forward, two back (sometimes more). Economists predict modest growth, and the real numbers come up short. Unsurprisingly, 2015 is on the same course. In fact, the International Monetary Fund is one of the latest groups to adjust growth estimates downward, going from an April 2015 forecast of 3.1% down to 2.5% in June.
Some analysts are predicting zero growth or worse – economic contraction and it’s plain to see why. Retail sales are flat. Gas prices are low, so people are either socking away those savings or paying down debt. Consumer confidence dipped in early May, though rebounded by the end of the month. And economic production fell in April for the fifth straight month.
All this confirms 2015 is off to a rough start.
But the bigger picture is more frightening. We just had a negative quarter. If this current quarter is negative too, we’re technically in a recession. It would be odd to be in a recession, yet have huge market returns and historically low interest rates.
And with rates near zero, the Fed has no more ammunition to fight the next recession. Rates must go up at some point, but you can be sure the Fed won’t raise them while we’re in a recession. If not now, when? Some are saying September 2015 at the earliest, but I’m thinking 2016 or later. Unfortunately, it might be more than a couple steps back for this year and beyond. Let’s hope not.