Former Federal Reserve Chairman Alan Greenspan told FOX Business on Thursday that the U.S. economyis poised to slow down very soon.
“Just wait until the fourth quarter number comes out, it’s going to be down around 2.5 percent,” Greenspan said during an exclusive interview with Maria Bartiromo. “We have monthly data which suggests that we are slowing down, we are not going negative, but we are definitely slowing down – the rate of growth as we go into 2019 probably at a 2 to 2.5 percent pace maximum.”
Gross domestic product (GDP) increased 3.5 percent in the third quarter, according to a revised estimate from the Bureau of Economic Analysis, but Greenspan said gross domestic savings, which consists of savings of the household, private corporate and public sectors, is a critical factor in determining his outlook.
“Gross domestic savings is the key funding to capital investment in the Unites States, and as a result we are seeing capital investments slowing down,” he said.
Earlier this week, White House Council of Economic Advisers Chairman Kevin Hassett told FOX Business a capital spending boom is giving the U.S. economy momentum.
“A capital spending boom like the one that we’re in usually takes three to five years,” he told Bartiromo. “We’ve had about a 10 percent increase in capital [spending] since this time last year and that should continue if it’s a normal spending boom for the next three to five years.”
However in Greenspan’s opinion, although a recession is unlikely, the U.S. has entered a period of stagflation driven by runaway spending and entitlement programs.
“We are not funding our entitlements and as a result we have this huge deficit – [a] trillion dollar budget deficit,” he said. “You can’t exist with that sort of phenomenon without inflation re-emerging itself.”
The annual inflation rate in the U.S. fell to 2.2 percent in November from 2.5 percent in October, according to the Labor Department.
Julia Limitone is a Senior Web Producer for FOXBusiness.com.
This material may not be published, broadcast, rewritten, or redistributed.
©2018 FOX News Network, LLC. All rights reserved.
Wall Street may have set new record highs this week, but the rally is masking an uncomfortable truth: Corporate America is still in the midst of recession.
Companies have begun announcing earnings for the second quarter, and the results are not expected to be pretty over the next few weeks. Analytics firm FactSet estimates profits in the Standard & Poor’s 500-stock index will fall 5.6 percent compared with a year ago — the fifth straight quarter of decline. The contraction has been so prolonged that investors consider it an “earnings recession.”
[Dow follows S&P to record high]
Corporate earnings are supposed to be the bedrock of stock market value, but at the moment, they appear to be pointing in opposite directions. Energy companies have been devastated by falling oil prices. Multinationals have been hamstrung by the stronger dollar. Banks have been hammered by ultralow interest rates.
The gloomy reality comes amid growing warnings that the risk of a full-blown recession is rising — not only for the United States, but also the broader global economy. Britain’s decision to leave the European Union is also sowing uncertainty in financial markets and threatening to undermine the recovery in the United Kingdom. One of the most pessimistic forecasts came from Deustche Bank this month, predicting a 60 percent chance of a downturn in the United States over the next year.
That all sounds pretty dismal, and it makes the record highs set this week by both the S&P 500 and the blue-chip Dow Jones industrial average even more perplexing. At least part of the rally — and, some analysts argue, most of it — is the result of the signals from the world’s central banks that the era of easy money is far from over. But investors are also betting that corporate America and the broader economy are turning a corner, if they’re not already back on track.
Many analysts think the earnings contraction that started in the second quarter of 2015 bottomed out early this year. Profits fell 6.7 percent in the first quarter compared with a year ago, which makes the 5.6 percent estimate for this quarter look a little rosier. The outlook for the third quarter is even better, with analysts forecasting a milder decline as oil prices and the U.S. dollar stabilize.
Then there was a blockbuster report from the Labor Department showing rock-solid job growth of 287,000 jobs in June. That gave many investors confidence that the U.S. economy was weathering the global storm, especially after the exceptionally weak addition of just 11,000 jobs in May. On top of that, a new prime minister has been selected in Britain, a step toward resolving the political turmoil that has roiled markets.
[Opinion: Theresa May must contain the Brexit damage — and more]
Anthony Valeri, investment strategist for LPL Financial, analyzed the S&P’s 12 earnings recessions since 1954. Nine of them were accompanied by economic recessions a year before or after, although the depth and duration of the downturns varied widely.
Three earnings recessions have not been tied to broader distress. The first two occurred in 1967 and 1985, which he notes are periods in which the federal deficit was increasing, rather than decreasing as it is now.
The third is the one we’re in right now, and it is not done playing out.