The day-to-day market volatility and melodramatic news from the media would lead one to believe that the economy is floundering. Yet, by most objective measures the, U.S. economy continues to improve and strengthen.
The Commerce Department has announced that gross domestic product increased by a 3% annual rate January through March. The data also showed corporate profits picking up. After-tax earnings climbed 9.7%, better than 8.2% during the fourth quarter. Year over year, profits were 42.7% higher, as the economy recovers from its deep recession. Certainly the unemployment remains elevated, however, this number is somewhat skewed by the extension and expansion of benefits for many. Moreover, the situation appears to be improving.
Reuters reported that Monster U.S. online jobs index, a gauge of online demand for labor in the United States, rose in April for a third straight month and posted its largest year-on-year percentage gain since July 2007. The data adds to signs of a rebound in the labor market with a growing trend of job demand from private companies, while plans for layoffs fell to their lowest level in four years in May. In the last five months almost 2 million new jobs have been created – 1.6 million in the private sector.
Finally, and perhaps most indicative of the strength of the economy, is that consumption is at an all time high. That’s right – people are spending more in the United States than ever before in history!
Certainly questions remain about the state of global markets. With that being said concerns about the euro have helped the U.S. dollar strengthen and have lead to additional foreign investment in the United States. On May 25 Federal Reserve Bank of St. Louis President James Bullard commented: “In the United States and globally, the recovery remains on track.”
He rested his confidence that growth will withstand the trouble now reverberating across financial markets on the stance of governments. Leaders “have made it very clear over the course of the last two years that they will not allow major financial institutions to fail outright at this juncture,” Bullard said. “Because these too-big-to-fail guarantees are in place, the contagion effects are much less likely to occur.”
We expect continued market volatility as we approach the mid-term elections and that inflation and income taxes will start to increase next year. Longer term, we also expect the general equity markets to grow. As always we recommend keeping any funds that you anticipate needing in the next 12 months in cash and/or short fixed income investments in addition to an emergency reserve. Longer-term savings should be invested in a diversified portfolio of equities and fixed income investments that are both domestic and foreign. The specific mix is dependent upon your individual needs, objectives and risk tolerance.
We hope that you are enjoying your summer and the good ecnomomy. The only thing worse than being upset about a bad economy is being worried when things are really good.
Please contact any of the financial advisors in the office if you would like to discuss your portfolio or if we can otherwise be of service to you, your family or friends. We are taking new clients on by referral only so please make sure that anyone who calls mentions your name.