The current U.S. economic expansion, now entering its seventh year, seems caught up in “it’s always something!” After a rough first quarter characterized by severe weather, a strengthening dollar, and a labor strike at a key California shipping dock, second quarter GDP bounced back to record 2.3% growth. First quarter GDP was revised upward to 0.6% growth versus a previously estimated 0.2% contraction. A big reason for the growth bounce-back was consumer spending, which grew 2.9% in the second quarter, up from 1.8% in the first. And trade, which subtracted 1.9% from growth in the first quarter, actually recorded a slight gain of 0.1% during the second as exports rose 5.3% and imports grew more slowly at 3.5%.

However, economists don’t expect much uplift in the second half of 2015. A mid-August survey in the Wall Street Journal pegged second half growth at 2.2%. At this level of growth the entire year 2015 would increase 2%, matching the pace of 2011-2014.

2% growth isn’t enough to boost consumers’ pocketbooks. Real disposable income from 2011-2014 grew only 1.5%, barely keeping up with inflation. We watch this statistic as it approximates the growth in available cash flow that consumers have to spend.

There is hope that real personal income can get a boost as the labor market recovers. The economy added 215,000 jobs in July and the unemployment rate held steady at 5.3%. Revisions added 6,000 more jobs in May and 8,000 more in June, bringing the average job growth to a respectable 235,000 per month over the last three months. However, even with these gains there is still slack in the labor market. A broad measure of unemployment that includes those looking for work, those in part-time jobs when they want full-time work, and discouraged workers was 10.4% in July. This is the lowest measure in seven years but well above long-term trends.

Companies are having a hard time generating growth in this environment. According to Thomson-Reuters, with more than 90% of firms in the S&P 500 reporting, second quarter sales have declined 3.5%, as the strong U.S. dollar has subtracted from flattish domestic gains. Earnings growth has fared better, up 1.2%, but much of the gains appear to be driven by lower quality maneuvers like cost cutting and share buybacks. However, when excluding the beaten down energy sector, results look considerably better, with sales advancing 1.5% and earnings increasing 8.7%.

With earnings growth so low, it isn’t surprising that companies have turned to mergers as a way to grow. According to Dealogic, takeover-related announcements would reach $4.58 trillion this year if the current pace of activity continues, comfortably exceeding the $4.29 trillion record of 2007. Whenever a merger is announced that impacts one of our stocks we are careful to assess value as mergers for non-strategic reasons often don’t enhance returns.

Earlier in the year, we predicted modest returns for the market as somewhat elevated valuations met the reality of minimal earnings growth. So far in 2015, this has come to pass. In this environment, stock selection remains the key to generating above-market returns.