Maybe The Economy Is Alright After All
🚀 The quick version: Recent data paints a picture of an economy that is stronger than traditional media would have you believe.
While we aren’t in a true ‘goldilocks’ economy yet according to the experts (fancy term for the economy being just right), we might be getting closer.
The deeper explanation:
Jobs data is encouraging. The US added 209K jobs in June. Experts pointed to this number being below expectations of 230K, but it’s not far off. Plus, wage growth was better coming in at +4.4% vs. expectations of +4.3% (nice to see as wage growth has not kept pace with inflation) and the unemployment rate ticked down to 3.6% from 3.7%.
US service sector is expanding. The service sector makes up about 80% of the US economy; the service ISM (a monthly survey Wall Street looks at to get a pulse on the service sector) number for June just came in at 53.9 vs. 50.3 in May, and above forecasts of 51.2 (a reading over 50 means economic expansion and below means economic contraction). Perhaps most notably, Prices Paid (= cost of services) came in at 54.1 from 56.2, meaning they are still rising but at a slower pace.
U.S. manufacturing is slowing. The manufacturing ISM for June (same survey just on the manufacturing sector) was soft with a headline number of 46, down from 46.9 in May and below forecasts of 47.1 (same above and below 50 meaning as above). Prices Paid also came down to 41.2 in June vs. 44.2 in May. Prices Paid moving lower in manufacturing typically is a positive indicator that prices for the consumer will move down in the near future (if the companies making your stuff are paying less to do it those savings typically trickle down).
Collectively, these results show continued job growth, wage growth, and prices that are coming down. If this trend continues, we may get our ‘goldilocks’ economy after all.
The next data point everyone will be watching is the June inflation number when the Consumer Price Index is released this Wednesday.
👪 How it affects your family: We have two observations that matter…
Interest rates will likely move slightly higher. While the FED is seeing positive signs in price metrics coming down (i.e. inflation is getting better), the strong job growth and low unemployment likely gives them cover to hike interest rates a bit more to fight inflation. With interest rates still moving a bit higher, we would be watching sentiment indicators (these are some sentiment indicators we watch) to wait for a better time to invest in stocks (here we go deeper into interest rates and the stock market).
CDs, Bonds, and Money Market Funds still look attractive. Especially if you plan to retire in the next several years, these types of investments are worth a look offering a +5% return right now with less risk than stocks (read about short term treasury ladders here).
