MAGAnomics – Third Quarter GDP Growth of 3% Exceeds “Economist Expectations”…


MAGAnomics is a generally common sense approach toward achieving dynamic growth in the U.S. economy.  Left-leaning economic experts (most of them) are gnashing their teeth as the America-First MAGAnomic principles are paying YUGE initial dividends.

Reuters News is forced to painfully publish the positive numbers; yet they talk down the economy despite the reality.  Again, using the Reuters information we’ll dig into the economic news, and deconstruct their dismissive ideologically-driven narrative.

WASHINGTON (Reuters) – The U.S. economy unexpectedly maintained a brisk pace of growth in the third quarter as an increase in inventory investment and a smaller trade deficit offset a hurricane-related slowdown in consumer spending and a decline in construction.

♦First, “unexpectedly”. Yeah, it’s always ‘unexpected’ when the results run counter to the preferred outcome.  Notice, “inventory investment”, that’s parseltongue verbiage to describe manufacturing and production infrastructure investment.  It’s not just “inventory” as in “unsold products”, what’s happening is companies are investing in growth and building out production capacity.  The “inventory” is actually equipment (being purchased) and operational infrastructure (being built), two measured GDP values.

♦Second, “smaller trade deficit”. Again, as we noted, the reductions in imports have a doubling impact on GDP growth because imports are deducted from GDP in the economic equation.  If you make a $100 widget in America and don’t import a $100 widget from China, the GDP grows by $200 (the combined value of the produced product and the absence of a deduction for the imported product).  Notice no economic publication is giving Trump credit for the “Made in USA”, America First, policy and promotion.

The economy grew at a 3.1 percent pace in the second quarter. It was the first time since 2014 that it experienced growth of 3 percent or more for two quarters in a row. Economists had forecast GDP increasing at a 2.5 percent rate in the third quarter.

[…]  Post-hurricane labor market, retail sales and industrial production data already show an acceleration in underlying economic activity. Economists expect the Federal Reserve will increase interest rates for a third time this year in December.

“Fed officials will be encouraged by both the overall performance and the composition of growth in the third quarter, which confirms the U.S. economic expansion remains on solid ground,” said Michelle Girard, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

Of course the Fed will increase rates.  However, FED policy is still disconnected from “Main Street”.   FED policy is focused on inflation.  We are still in the space between two economies, “Wall Street” and “Main Street”.   FED policy is designed around the Wall Street economic model they created over 20+ years.

Remember, the FED had consigned the “Main Street” economy to be a “service driven economy”; it is Trump’s MAGAnomics that has disrupted this design and is bringing back a production and manufacturing economy, a middle-class economy.  As such FED policy needs both time and new leadership to come into synergy with an entirely different set of economic policy initiatives created by President Trump.

[…] Businesses accumulated inventories at a $35.8 billion pace in the third quarter, leading to inventory investment adding 0.73 percentage point to third-quarter GDP growth. Inventories contributed just over a tenth of a percentage point to output in the prior period. Economists expect a modest boost from inventories in the fourth quarter.

These “inventories” include raw material purchases for future products.  Remember, companies are smart… the free market is smart…. production companies know when to forecast higher import prices on any raw material.  Like you, companies will purchase items now that they predict will increase in price later.  This boosts the gross margin when the final product is assembled for sale.

When final product assembly is timed when the domestic economy is ‘hot’, the final product has a higher selling price.  Lower initial purchase costs for raw materials combined with higher selling prices equals bigger profits.  It’s easy peasy business 101.

Though export growth slowed in the last quarter, that was eclipsed by the steepest pace of decline in imports in three years, leaving a smaller trade deficit, which added four-tenths of a percentage point to GDP growth. Trade has contributed to output for three quarters in a row.

Business investment in equipment rose at an 8.6 percent rate, increasing for a fourth straight quarter.

Import purchases dropping, thanks to Trump policy and promotion of ‘Made in USA’ programs, leads to domestic companies buying equipment to ‘Make in USA’.  DUH…

[…]  Growth in consumer spending, which accounts for more than two-thirds of the U.S. economy, slowed to a 2.4 percent rate as hurricanes Harvey and Irma hurt incomes.

Consumer spending rose at a robust 3.3 percent pace in the second quarter and is likely to accelerate in the fourth quarter with a separate report on Friday showing consumer sentiment holding at lofty levels in October.

“Lofty levels”?  Writers at Reuters can’t even give Trump credit for the highest level of consumer confidence in the past 40 years.

Despite the moderation in consumer spending, inflation perked up in the third quarter, likely as a result of disruptions to the supply chain caused by the hurricanes.

They don’t know what kicked up inflation, because they are stuck in their economic paradigms and not recognizing a tighter labor market… leads to increased wages… leads to increased prices… leads to increased inflation on products from within those labor markets.

This next part cracks me up:

The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 1.3 percent rate. That followed a 0.9 percent pace of increase in the second quarter.

With inflation rising, income at the disposal of households increased at a 0.6 percent rate, braking sharply from the second-quarter’s strong 3.3 percent pace. (link)

As we have continually stated the FED doesn’t measure ‘highly consumable products’ in their inflation index (ie. food, fuel, energy costs).  These highly consumable products represent the largest part of the expenditures for households.  They are also domestic products.

Trump’s MAGAnomic Main Street (middle-class) policies, as executed with removal of regulation and increases in production etc., are driving down the price of food, fuel, oil and energy – all domestic products.  This lower cost-of-living approach, in conjunction with increased wages as a result of labor market, means a doubling effect on the incomes of middle-class Americans.   Stuff we use a lot costs less and we are simultaneously seeing wage increases.

If it wasn’t for the insufferable ObamaCare, GDP growth would be pushing 4% or higher because we’d have that much more available purchasing power.  However, remaining positive and not getting annoyed by that aspect, this is also why it’s very predictable to see tax reform putting even more spending fuel into your pocket….

All of that will drive GDP well beyond 5%; and when you combine our ability to spend, with U.S. companies making the stuff we want, and again less imports -and you know how imports deduct from GDP growth- well, the totality of it makes 6 or 7% growth seem very plausible….  Which is exactly what Steve Forbes predicted two years ago if Donald Trump became President Trump.

 

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