Tuesday, April 14, 2015

We're Sliding into Spring!

Spring seems to mean tepid weather, at least here in Oregon.  Our weather is warm and sunny this year, except for a cold snap this past week.  Weather does enter into economic trends, especially when the average family has to spend less on heating.  This is the fist time economists have brought weather into the mix on why the economy grew slowly.

Most of the economic news stories trickling through, seem to equate the tepid growth with a strong dollar, a resolved stevedore strike and lower priced gas.  Here's a story from Reuters which states these elements as factors in a tepid economy.  

But wait, there's more! (this part makes me feel like a late night TV Huckster).  Foreign economies seem to be experiencing similar problems.  In some ways this makes sense, since the US is a prime trading partner, and the size of the US economy virtually means the rest of the world is affected by the US expansions or contractions.

China's growth diminished to 7% and slowing quickly.  This is a problematic trend for a variety of reasons. 

In 2009, our MBA class went to Shanghai.  China at that time was obviously an emerging economy.  Road construction was everywhere, and we watched Suzhou being built.  The statistics on Suzhou are surprising.  They were in the process of building a city for one million people, putting up 10 or 12 story apartment buildings everywhere, digging and filling an artificial lake, and creating neighborhoods.  The rural people were moving to the city, and Suzhou would become a world class China-Singapore industrial park.  At the time, China's growth was in the low double digits.  This type of construction is the forerunner to economic expansion.  At the same time, people in China were worried if the economic growth slowed to 7 or 8%, they would have social unrest and difficult circumstances.  Now, with China's growth so low, I wonder what effect this can have on the rest of the world.

The IMF thinks Europe and Japan are doing better by giving them upgrades, but the US got a downgrade for our slowing economy.  Interestingly, they predict China is under 7%, and slowing economies include Russia at -3.8%. 

Looking at these travails from an overview position, the world economy is slowing.  This is going to make it difficult for the Fed to raise interest rates, although fortunately they are being patient. US Retail sales also slowed during the first quarter.  All of these factors point to slowing economies, and perhaps super low inflation brought about by weak retail sales.  This is not good news.  These developments mean the financial crisis in 2008 is still with us.  Additionally, this means the Kondratiev wave low point is still alive and well.  Hopefully a new technology will emerge that will pull us out of the Kondratiev trough!

Wise investors should rig for stormy seas.