To be sure, 2H-2015 GDP growth slowed from 2.3% in 1H-2015 to 1.5%. It is estimated that Q4 GDP slowed further to 0.8%. But this is hardly a surprise after a long string of strong quarters and the historically volatile nature of GDP prints. Despite all this, many are throwing around the recession idea. Breaking the 2H-2015 into GDP’s components is illuminating and suggests recession fears may be overblown.
| Component | 1H—2015 | 2H-2015 (est.) |
| Consumption | 1.8% | 1.7% |
| Investment | 0.8% | 0.7% |
| Government Spending | 0.1% | 0.2% |
| Inventory Adjustments | 0.4% | -0.8% |
| Net Trade (Exports – Imports) | -0.9% | -0.4% |
The main drag in the slowdown in 2H-2015 GDP growth is sure to be inventory adjustments. Adjustments to inventories are largely transitory in nature and should not be assumed to impact GDP numbers on a consistent or regular basis. And, since the US perpetually runs a trade-deficit the negative contribution to GDP is ubiquitous. Of positive note, the strength of the waning US dependence on foreign-oil is likely to continue to positively impact GDP.
Other coincident indicators are not flashing ominous signs of a recession either. US employers continue to add jobs at a pace that is bound to bring inflationary wage pressures. Personal Income, Real Business Sales, and recovery in the residential real-estate markets continue to remain positive suggesting the US economy will not enter recession this year.
Herb Morgan is the Founder, CEO, and Chief Investment Officer at Efficient Market Advisors, a participant in the ETF Strategist Channel.