No Chance of a Recession Now?
The revised Q4 GDP came in at +0.1% (up from -0.1%) which means we are no longer in danger of going into recession! Booyah! It also means that my December prediction of “near 0%” is still smoking hot, even if the economy is not.
Budget Cuts (or really just a decrease in the rate of growth)
The economy is still struggling in 2013 partially due to the ending of the 2% Social Security tax cut. With your taxes 2% higher this year and gas prices on the rise, you now have between 2-3% less to spend. So if government spending were reduced by, let’s just pick a number, say 2.4%, you would expect politicians and government officials to just tighten their belts like we are all doing without whining, complaining or threats. For the past couple weeks it has sounded like you are taking candy bars away from six year olds. These people are addicted to spending your money and the power that comes with it!
We are adjusting our household budgets because we have 2-3% less and the government should have to do the same. Oh wait, I forgot. The U.S. Senate doesn’t have a budget. They haven’t had one for four years. This means that every payday you send your taxes to someone who doesn’t have a budget. They just grab the money and spend it! And when they don’t have enough money, they borrow more.
What About Now?
How is the economy doing in Q1, 2013? Let’s look at a few “different” economic indicators.
Non-Tradition Consumer Spending Economic Indicators:
Coupon Index - People are trying to stretch their money by using more coupons. This is logical but according to the Internet Coupon Index (from Coupon.com), coupon usage has spiked just as it did right before the Great Recession began in December 2007. Not a good sign. Indicator: Negative
Restaurant Performance Index – This was actually up in January after four months of decline. This is surprising since many restaurant related stocks are not doing well. In my locale, the restaurants that survived the recession are busy but new restaurants are not opening. This means capacity is still less than the 2008 level. Indicator: Negative but improving.
Retail Advertising – I have noticed a reduction in Sunday sales flyers, coupon magazine thickness and junk mail in 2013. Retailers are cutting back on spending and so are their customers. Indicator: Negative
Charitable Contributions – These are reportedly down, but it should be expected that people would cut spending here first. However, it will be a very positive sign when giving increases. Indicator: Neutral
Gambling – The new Ohio casinos are reporting that revenue is considerably under forecast. But all the factors listed above for charitable contributions apply here. Indicator: Neutral
Some Unusual Economic Indicators:
The Hot Waitress Index – This indicator says that the waitresses are more attractive during economic downturns since these women turn to restaurant jobs when they cannot find jobs in other fields. I have previously stated that this indicator (if accurate) is only relevant in New York, Los Angeles or other big cities with entertainment industries.
However, I have noticed that there are more guys working as waiters than normal. This is probably the result of the lack of factory and other higher-paying industrial jobs that would be more attractive to this demographic. If this is true, as the job market improves, the ratio of waitresses to waiters should increase. Indicator: Negative
The Stripper Index – This indicator says that “gentlemen club” spending is one of the first cuts made in an economic downturn. Reportedly more clubs are closing than opening around the country. Conversely in Canada, where economic conditions are much better, clubs are having problems recruiting enough “entertainers”. The obvious solution would be to export U.S. strippers to Canada. I don’t think this will happen because President Obama says there is a shortage of meat inspectors in the U.S. due to the recent spending cuts. And you know how picky Canada is about imported beef. Indicator: Negative
Bottom Line: The Q1 GDP forecast of 1.2% still appears to be solid.
Model T Update:
The S&P 500 Index is at 1518, 2% below the Model T peak prediction of 1550. Because the Model T’s track record has been between +/- 2%, the high of 1530 in February may well have been the peak. Unfortunately the Model T does not take into account sequestrations or a possible government shutdown in April.
A possible scenario would be that another budget compromise in March results in stock market gains in April and May. This could boost the S&P to 1550 or more and would then set the stage for a major correction.