Rolling Recessions, Soft Landings and a 5.8% GDP

While the Atlanta Fed’s automated model indicates that Q3 is running at a 5.8% GDP growth currently, their chimerical target is correctly highlighting a stronger than expected economy. When all major industries have worker shortages and record low inventories – as we reiterate monthly, it’s hard to see rolling recessions or any trend toward rising unemployment on the horizon. The food, energy and travel sectors are booming.  Major manufacturing segments are also strong, despite a goods sector with no inflation. The automobile industry keeps adding workers while dealing with a major shortfall of inventory. There hasn’t been a real recession in Autos since 2008 – 2009 and no hint yet of trouble today.

Home builders keep hiring more workers as new home sales will dominate the record low inventory of existing home sales as long as mortgage rates remain in this 5%+ zone. Commercial construction is also strong, thanks in part to free money being handed out by the Government. Once core inflation dips under 3% and mortgage rates fall under 5%, then the housing supply will head toward recession territory. However, we are a long way from a housing contraction to be worried about like 2006 – 2009.

Aerospace is another major sector of the US and world economy that is soaring with secular tailwinds. The US is employing a record number of airplane engineers, while Boeing and Airbus keep building enormous backlogs. The economic surprise index is healthy, the Atlanta Fed projects an optimistic 5.8% GDP growth rate this quarter that would seem to support the elevated earnings multiples currently being assigned to the stock market. It’s good to look for clues from the consumer or industry that this Government juiced expansion cycle is rolling over, but thus far there are no red flags to warrant more than a normal stock market correction phase during this seasonally volatile August through October period. The SP 500 index 4400’s was short term support with lower lows closer to the 200 day moving average by late August or early September. It looks like 4400 will be tested this week, so we will remain with elevated cash levels in the portfolio until the lower price and time window indicates an oversold condition.



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