Signs of the economy cooling with corporate profits down & Q4 GDP revised down again.

Signs of the economy cooling with corporate profits down & Q4 GDP revised down again.


SUSAN SIRAVO: Robert, this
week, GDP for fourth quarter was revised down again. Given that, what are your
expectations for first quarter? ROBERT DYE: Yes, Susan. We got the third estimate
of fourth quarter GDP. That’s come down now to 2.2%. And when we think about the
first quarter, we’re about 1.5% or so. And so that altogether,
if that happens, that would be three
consecutive quarters of declining GDP growth from the
4.3% we got midyear last year. So we can say the US
economy is cooling, the global economy is cooling. And we have elevated our risk
factors, looking forward. And I think that’s appropriate. But definitely, this
is a different economy than what we had
late last summer, when everything was looking
really, really good. SUSAN SIRAVO: We also learned
that corporate profits were down, as well. Can you expand on that? ROBERT DYE: Yes. And that relates
to the GDP story. It’s part of that accounting. Corporate profits
came down slightly at the end of last year,
after a very good year. But I am concerned
about the direction here, because as
labor costs go up and capital costs go up in
a flat pricing environment, that implies a squeeze on
corporate profits going forward. So this is something we’re
going to watch out for. And a potential trip
wire for the US economy, if we do see corporate profits
continue to come under pressure this year. SUSAN SIRAVO: Robert, let’s
talk about the housing market. How are falling mortgage
rates affecting home sales? ROBERT DYE: Well, that’s the
good news part of the story. Because we have seen new home
sales come up a little bit. Home construction has been soft. I expect that to come up
a little bit, as well. Home prices, same story. They’ve been soft. I expect them to
firm a little bit. But I’m not sure
that this is going to be a fundamental reset
for the housing market, simply because a lot of demand
has been spent out already in this cycle. And so even though mortgage
rates are coming down, consumer confidence is also
softening a little bit. And so, I think we’ll see
a temporary lift on housing over the next couple of months. But maybe not enough to really
firmly and completely change the trajectory of this market.

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