Economic Data

Posted by on May 4, 2015

Week over week, in spite of some seemingly big moves during the past week, the markets were pretty much unchanged. The S&P 500, -0.44%; the Dow, -0.31% and the NASDAQ, -1.70%(1) Earnings have come in better than expected for the most part, the economic news remains generally positive and the Fed continues to keep its rate powder dry. While this week’s job report may cause a flurry of action, the markets are likely to continue mostly directionless until the Fed gets moving on its rate hike.

Well, the usual end of the world as we know it crew were out in full throat mid-week last week with the report that the US Gross Domestic Product (GDP) – basically, all the goods and services our economy creates – only grew at 0.2%. This then, say the worriers, indicates a slowing of the economy and a “certain” move to lower stock prices, etc., et. al., ad nauseum.

Couple things. First, as happened last year at this time, we had some pretty tough weather over a lot of the country. This time, we also had companies adjusting to the stronger dollar and we had a long strike on the West Coast slowing the flow of imports and exports. Still, compared with last year’s first quarter, which had the GDP moving down 2.10%, we did okay.

We’ll have two more revisions to these GDP data before they’re final. Whatever they are means very little as they are what’s known as a trailing indicator – simply old news that is good for reminiscing and reviewing but that’s all.

Of much more importance, and also like last year, the economy is now, in fact, continuing to expand. We’re seeing the dollar firm up and it looks as if oil prices are finding a sustainable level.
I’d recommend paying no more attention to reports about this quarter. The market is a forward-looking indicator and part of the Index of Leading Economic Indicators which remain on a positive streak of 14 months running with nothing seeming on the horizon to turn that down. Overall job growth continues quite positive with initial unemployment claims this past week posting the second lowest number since December 1973! Wage growth is starting to increase and corporate profits remain strong.

In other words, the trend is your friend…

US manufacturing

I get pretty tired of people stating categorically that we (the US) doesn’t “make anything” anymore; that we’re not competitive in the global markets. Here’s a part of an article from James Surowiecki that he wrote for the New Yorker magazine that should help clear up that misconception.

“Meanwhile, the outlook for industry is better than it’s been in a long time. American manufacturing was decimated during the first decade of this century, with six million jobs gone, and it was easy to believe that manufacturing was a lost cause. Yet it still accounts for more than two trillion dollars in output, and American factories are still among the most productive in the world. What’s more, energy costs here are falling, and labor costs abroad are rising. Suddenly, the US seems like a reasonably affordable place to make high-end products, like GE’s jet engines and gas and wind turbines. There’s a growing market for such products, too. As developing countries get richer, they’re spending more on power, transportation infrastructure, and health care.

This kind of manufacturing, with its automated, high-tech factories, doesn’t create as many jobs as old-fashioned heavy industry, but the gains are still significant.

In the past six years, GE has opened more than twenty new plants and added more than sixteen thousand new workers in the US. Advanced manufacturing is a major driver of innovative activity, exports, and economic growth.”

Further, in April, the ISM manufacturing index, which measures factory sentiment around the country, showed fifteen of eighteen industries reporting growth. That was an improvement from the ten industries reporting growth in March. In addition, the two most forward looking indexes, new orders and production, showed their largest gains since late last year.
This is additional reinforcement that the economy is, at its most basic levels, continuing to grow and that our manufacturing sector is, in fact, thriving and growing.

A point about market volatility

Looking at them on a day-to-day basis, the daily market changes can prove to be a touch unsettling to many investors and have been known to even cause inappropriate decisions to be made. Please keep these following statistics in mind.

According to the fine folk at S&P/Dow Jones Indices, going back to 1950, the majority of daily gains and losses take place in a pretty narrow percentage range. For instance, about 80% of the market’s daily moves are between plus and minus just 1%. Almost 99% of all daily moves swing between plus and minus 3%. Here’s the catch.

We know there are times when the market blows outside these ranges and, especially when the swing is down, the desire to get out may grab you. Hold that thought! The truth about the big down days is that most of them occur within the same periods as the big up moves.
Ignore the headlines! Stay with quality!



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