eResearch | In his latest article, Scott Grannis, the Calafia Beach Pundit, notes that over the past ten years, the U.S. economy has chugged along at an unremarkable average of about 2% per annum. While not an outstanding growth rate, nevertheless the economic expansion is the longest in U.S. history. Scott Grannis, the Calafia Beach Pundit and noted economist, believes the U.S. economy is capable of continuing at this rate.
This continuing 2% per annum growth rate in GDP seems to be confirmed by the decline in the past year of about 1% (100 bps) in the yield on 5-year TIPS (Treasury Inflation-Protected Securities) to about 0.5%. The Fed also recently stated that it expected economic growth of about 2% going forward.
Jobs Growth versus GDP Growth
GDP growth and jobs growth tend to move together and, as shown in the accompanying chart below, the recent slowing in GDP growth is reflected in a similar slowing in jobs growth.
Both jobs and GDP have been impacted by a lack of business investment which, in turn, has likely been affected by the U.S. trade wars. For GDP growth to accelerate there has to be a pick-up in business investment, which spurs jobs growth and thus fuels the economy.
Swap Spreads
One of Mr. Grannis’ favourite charts is the 2-year Swaps Spread, which he uses to measure systemic risk, financial market liquidity, and fundamental economic health. The lower the Spread the better and, as the following chart shows, the Spreads are low for both the USA and the EuroZone. Very positive.
CDS Spreads
Similarly, 5-year Credit Default Swap Spreads are equally positive in their readings. These CDS Spreads are an excellent indicator of the market’s confidence in the outlook for corporate profits. Since these Spreads are quite low, it means that the market is confident that the outlook for profits, and therefore the economy, is healthy.
You can read the entire Calafia Beach Pundit article with its accompanying 14 charts by clicking: Slow Recovery but Long Expansion
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