This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

GDP Is Better Than Good -- but Interest Rates are Still Not Going Up

NEW YORK ( TheStreet) -- The economy did even better than we thought in the second quarter -- but none of it means that interest rates are going anywhere soon.

Gross domestic product rose at an annual 4.2% clip between April and June, as private investment was significantly better than first estimated, the Commerce Department said Thursday. Last month, the government's first estimate said the economy grew at a 4.0% rate after declining 2.1% in the weather-addled first three months of 2014.

Read More: 10 Stocks George Soros Is Buying

In a normal expansion -- we're more or less past the point of calling this a recovery any longer -- a number like this would be an occasion for expecting the Federal Reserve to raise interest rates fairly soon. But investors shouldn't be lulled. Though the number is very good, the broader backdrop policy makers are looking at is much less positive.

Two speeches last week by central bankers at the Jackson Hole economic conference make the point clearly.

The most recent problem is the ongoing woes in Europe, which led European Central Bank chief Mario Draghi to say the ECB is still actively worried about deflation and fiscal austerity, and will likely be pushing rates lower rather than higher. When Germany's economy is shrinking, Europe has problems that can't be ignored.

But for U.S. markets, Federal Reserve Chair Janet Yellen matters more. And she argued that "underutilization of labor resources still remains significant.''

Yellen has been the most people-oriented Fed Chair in memory, meaning the one most likely to give the fates and wallets of working people as much weight as those of bond holders. She has forced the country and the markets to focus more seriously on working-class and middle-class problems like stagnant wages and the 7.5 million workers who work part-time for economic reasons, about 3 million more than normal. Plus, she has forced America to talk about median real wages, which are still about 5% lower than before the recession.

Rates are going nowhere until Europe stabilizes, and until Yellen's alternative measures of work force slack improve more than they have.

That's why rates on 10-year Treasury bonds went down Thursday morning. People understood that the details of the GDP report, while good, aren't going to force anyone's hand.

Read More: Goldman Sachs' 50 Stocks That Matter Most to Hedge Funds

Consumption grew at the same 2.5% clip that the government first estimated -- enough to support restaurant chains like Chipotle (CMG)   and even tourism companies like United Continental (UAL) and Expedia (EXPE) . Residential fixed investment rose an annualized 7.2%, benefiting Home Depot (HD) and Lowe's (LOW) , as well as builders like D.R. Horton (DHI) . That's way better than the 3.9%-a-year first-quarter decline.

Exports rose a little bit more than the government first estimated, at 10.1% a year, also reversing a first-quarter drop.

The fact that the revisions changed little means that not much changed for the rate outlook either. And investors appeared to like that news Thursday morning.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @timmullaney

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates CHIPOTLE MEXICAN GRILL INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHIPOTLE MEXICAN GRILL INC (CMG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $125.16 -2.80%
FB $77.27 -2.00%
GOOG $528.82 -2.20%
TSLA $231.17 0.29%
YHOO $41.42 -1.50%

Markets

DOW 17,937.27 +9.07 0.05%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs