Stocks are off to a frightening start in 2016, with the US major indexes plunging as much as 3% during the opening session on Monday alone and even more in some overseas markets. The Dow briefly fell over 400 points to below 17,000 on Monday and closed well below it on Wednesday. The S&P 500 dipped below 2,000 briefly on Monday and closed well below it yesterday.
The Dow and the S&P 500 continued to plunge lower again today. Both are nearing a 10% correction. According to CNBC, this is the worst January decline on record.
So what changed between the end of last year and the first week of January to turn investors so negative all of a sudden? The answer is CHINA which reported weaker than expected economic growth on Monday, and that sent Chinese shares sharply lower and the rest of the world followed.
The bad news coming out of China continued to worsen as the first week of the New Year unfolded. Yesterday we learned that China’s Purchasing Managers Index (manufacturing) fell to a 17-month low in the latest report, and the plunge in stocks continued.
And today China devalued its currency once again for the third time in less than a year, which led to another plunge in Chinese stocks and a second shutdown of its markets just this week.
Bad news out of China is nothing new. That was the story throughout most of 2015, but markets these days don’t need much to worry about to go into a tizzy. Let’s face it – most of the global economic news over the last year has been disappointing.
Last year’s waning days found the Mideast in turmoil, Europe roiled by a growing immigrant crisis and the EU economy barely growing. Several major economies, Brazil and Japan among them, were in recession.
Sure, plunging prices of oil and other commodities stimulated consumer spending to some extent last year. But they also pushed every major oil-exporting nation – Russia, Saudi Arabia and Venezuela in particular – into a deep economic slump.
Meanwhile, the US isn’t faring much better. The Institute of Supply Management reported on Monday that factory activity here also fell from an already depressed reading of 48.6 in November to 48.2 in December, more than expected. Meanwhile, US port traffic fell 10% last year – a sign that the post-financial crisis export boom is languishing.
To top it off, the Atlanta Fed lowered its widely-watched real-time GDPNow estimate for the 4Q of 2015 to just 0.7%. It had already cut its previous estimate of 1.9% to 1.3% two days before Christmas.
The scariest part of the chart above is the precipitous decline in the Atlanta Fed’s GDP forecast since early November when the reading was at 2.8%. Now it’s just 0.7%. That’s less than half of the 2.0% growth the Commerce Department reported for the 3Q on December 22.
Obviously the trend in the US economy is not good and bears watching very closely just ahead.
The Obama Economic Recovery That Didn’t Happen
A new report from Sentier Research based on Census Department data finds that US median household income of $56,700 at the end of 2015 stood exactly where it was, adjusted for inflation, at the end of 2007. That’s eight years of zero growth in case you are counting.
Last week the Joint Economic Committee of Congress issued a report on the Obama recovery which was loaded with even more dismal news. On almost every measure examined, the 2009-2015 economic recovery has been the weakest in more than 50 years.
Democrats used to disparage the Ronald Reagan expansion as nothing special, yet the cumulative growth rate in the economy over the first 25 quarters under Reagan was 34% versus only 14.3% under Obama.
How much does this matter? If we had grown at just an average pace, GDP in 2015 would have been about $1.8 trillion higher. Under the Reagan recovery growth rate, GDP would have been$2.7 trillion higher by now.
Amazingly, if we had had a Reagan-paced job recovery the last seven years, we would today have at least 12 million more Americans working. Likely job creators are still on strike and it’s a result of onerous EPA rules, Obamacare, tax hikes and other assaults against business.
That’s the real sorry story of the Obama era. If the Obama recovery had been just the average of those shown above, the Joint Economic Committee (JEC) calculates that “after-tax per person income would be $3,339 [in 2009 dollars] per year higher.” That’s huge!
The JEC’s dreary conclusion tells the whole story of the era of Obamanomics: “On economic growth the Obama recovery ranks dead last.”
I could go on and on, but I’ll leave it there for today. I hope your New Year is off to a good start.
01-12-2016 4:11 AM
Gary D. Halbert