The stock market is going down and some say it is a correction, and that stocks will be back up in spring. Well, not so fast. There are concerns that the economy is genuinely slowing down. Here is a tweet from Edward Harrison…
Lower equities, lower oil, lower copper, lower bond yields, flattening yield curve says economic weakness, not just flight to quality
— Edward Harrison (@edwardnh) February 3, 2014
This is not a premature ending of the business cycle. This is the natural level of real GDP that corresponds to the new low level of labor share.
I have been saying that when real GDP hits around the $16.0 to $16.1 trillion point, that the effective demand limit would kick in and we would see utilization of labor and capital slow down. Well, real GDP is hitting that point now during 1st quarter 2014 after reaching $15.966 trillion in 4th quarter 2013.
We are witnessing more than a correction. This is “effectively” the end of the business cycle expansion, domestically and globally for the US. The data will progressively reveal more weakness through the 3rd quarter 2014.