Fund manager's comment/Tom Walker
Is the US economy heading for recession? There is ample evidence that it is. Amid the plethora of statistics, consider those for airfreight.
Compared with the year before, San Francisco airport's revenue from airfreight is down by 23% over the last 12 months. Boston's is down by 19%, and Denver's by 17%.
This is consistent with the gloomy data exposed by the Federal Reserve's most recent Beige Book. 'Sustained weakness in the manufacturing sector spilled over to other businesses, with many districts indicating declines in demand for office space and trucking and shipping services,' the book said earlier this month.
The point is the slowdown is spreading. Gap's sales in July were down 12%, Abercrombie and Fitch's down 14% and Sears Roebuck's fell by 2.5%. So should prudent investors just buy bonds? We don't think so. We've been plane spotting. Two huge US metropolitan areas have been enjoying robust growth in air cargo. This suggests that these economies have bottomed out and are on the rise.
Year-to-date domestic cargo shipments into Miami have gone up by an impressive 19% compared to the previous year. Miami is by far the hottest economy in Florida, with employment growing at four times the national rate. This vibrant region has established itself as a trading centre with Latin America and as a US base for many foreign companies.
Even more telling is total air cargo shipments to and from Dallas/Fort Worth. These grew at an 11.5% year-over-year rate in May, after slowing considerably in January and February. The recovery in May was because of a larger increase in inbound cargo.
That will mean more outbound cargo in time: raw materials flow into Dallas, and then finished goods are shipped out. This is an early and positive sign for the local economy.
And as for that Beige Book, its data is, of course, historic. The slope of the yield curve, and three months of better looking leading indicators, hold out the expectation of a mild re-acceleration in economic activity.
The US Tax Reduction Act of 1975 became law at the end of March 1975, during the worst US recession in post-war history. Taxpayers got a 10% refund on their 1974 taxes, with a minimum of $100 and a maximum of $200. Checks were mailed out in second quarter 1975.
This added $8bn to Americans' disposable income - the equivalent of $60bn today.
The 1975 tax rebate did the business. The recession was soon pronounced dead.
Economists meanwhile will huff and puff. We're interested in Nikolai Kondratieff's Long Wave Theory. The peak of the latest wave isn't due until well into the next decade. With the new science of photonics, there's much more growth to come. So the question isn't whether US equities will recover. It's when.
• Business productivity grew during Q2.
• Strong outlook for Miami area.
• Beige book actually historic data.
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