by Gary Alexander
April 2, 2024
In the last business day of the quarter, the Bureau of Economic Analysis (BEA) told us that the U.S. economy grew by a robust 3.4% (annual rate) in the final quarter of 2023 and +2.5% for the full year.
Did the economy really grow by 3.4% in the last measurable quarter and 2.5% for the full year? We have some serious evidence to the contrary, to let’s take a closer look under the hood for a quarterly check-up.
As we have all heard, the American consumer accounts for 70% of GDP, and that’s the basic problem with that GDP calculation. It puts too much emphasis on the consumer, on retail sales. It focuses too closely on end demand, the ephemeral sentiment of the shopper. That’s why I like to wait for the end of each quarter, when the BEA also releases Gross Output (GO), a more expansive measure of growth, accounting for all of the various levels of production. By comparison to GDP, Gross Output in the last quarter and year has been more anemic, trailing GDP growth for the past few quarters, and that trend continued in the fourth quarter. “GO” was a full point below GDP in the fourth quarter, 2.4% vs. 3.4%,
Looking further back, business-to-business spending has been virtually flat since the start of 2022.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This flat-lining indicates that the business sector – which is substantially larger than the retail sector and generally has a better view of the direction of the economy than consumers – is not on a growth trend.
Dr. Mark Skousen developed the theory behind Gross Output when he wrote his economic study of “The Structure of Production” in 1990 – at a time when I was his staff editor for his newsletter, “Forecasts and Strategies.” He kept promoting this total growth statistic for nearly 25 years before it was added to the National Output statistics in 2014, as reflected in his 2015 update to the book. The reason for this added measure, Skousen says, is that “B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending.”
While GDP includes only a small portion of investment spending, GO accounts for significantly more of total business investment outlays, which (as the next chart shows) makes the B2B index more volatile. This chart shows business spending’s larger leaps (vs. consumer spending) during the 2008 financial crisis, as well as its recent flat-lining, indicating a possible advance warning of a slowdown to come.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
One other aspect, evident in this chart, is that the blue line is almost double the red line, meaning that business spending (nearly $34 trillion) is almost double the level of consumer spending ($17 trillion). That means we no longer have to repeat the mantra, “the consumer is two-thirds of the economy.” We can say the consumer is two-thirds of GDP, but the consumer is more precisely one third of the economy.
Since GO tends to be a leading indicator, these latest data suggests we may be headed into a slowdown in the second half of 2024 – if not an outright recession. While consumer spending, by its nature, is fairly steady, businesses vary their spending depending on their view of anticipated future economic conditions.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s what we’re seeing so far in 2024. Last week, the Atlanta Fed GDPNow model reduced its estimate for the first quarter of 2024 to 2.1%, while the Blue Chip economists predict a range of +1.0% to +2.5%.
Now, let’s turn to likely April market performance, as first-quarter earnings season is about to commence:
April Market Seasonality: Will the Winning Streak Continue?
T.S. Eliot was not a gifted market timer. He opened his vast (434-line) epic poem, “The Waste Land,” with the line quoted above, but when it was published at the start of 1923, the stock market began to soar in “The Roaring 20s,” and over the subsequent century, April was one of the market’s least cruel months.
Bespoke Investment Group has tabulated the fact that April is the best-performing month of the last 50 years, averaging 2.2% each April since the bear market of 1973-74, and since the publication of “The Waste Land,” it trails #1-July and sits just behind December as the second-best month since 1923.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The chart below shows the same data as the table above in a bar-chart forma.
Source: Bespoke Investment Group
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Here’s another oddity about this April, courtesy of Bespoke. The S&P 500 closed March up 3.1%, making it the fifth straight month registering S&P gains of at least 1% per month. In fact, we have seen some mouth-watering cumulative gains of 27.6% since the lows of October 27, 2023. Here they are, by month:
The market doesn’t gain 1% or more in five consecutive months very often. In the nearly 80 years since 1945, this winning streak has only happened 12 previous times, and the market is always positive over the next 12 months, averaging another +14.3% gain from the end of the fifth consecutive 1%+ rising month.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This doesn’t mean April 2024 is a lock. In fact, this list makes it a virtual toss-up, with seven rising months and five falling months, and one of those rising months (1991) is near zero (+0.03%), so there is no guarantee that this April will keep the streak alive, but 12 out of 12 rising years is promising indeed.
Ironically, you would think that April would perform better in the second half of the month, due to (1) the beginning of earnings season reports, and (2) post-tax season relief buying, but the record shows that the first 18 days of April contain nearly all of the net gains in the S&P 500 for Aprils over the last 70 years:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
P.S. All Hail NATO at 75
This week marks a notable birthday.
On April 4, 1949, the North American Treaty Organization (NATO) was founded in Washington, DC, by representatives of the U.S., Canada, and 10 West European nations. It was designed to stop the advance of Russia. NATO eventually expanded to 30 European states, plus the U.S. and Canada, with headquarters in Brussels. It certainly worked its magic during the 40 years of the Cold War in Europe before the fall of the Berlin Wall in 1989, but its purpose and funding have been sometimes vague and sporadic since then.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Food and Energy – The Overlooked Inflation Drivers
Income Mail by Bryan Perry
A Changing of the Market’s Guard
Growth Mail by Gary Alexander
Is the Economy Really Growing at a Robust 3.4%?
Global Mail by Ivan Martchev
Stocks Are Partying Like It is 1995
Sector Spotlight by Jason Bodner
Raiders of the Lost Art of Investing
View Full Archive
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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