I am not sure where to go this morning, I mean with my writing about the market. I want to say, “Take that, all you doomsayers.” I want to tell “The Donald” he is way out of his league when he discusses the economic state of the US, meaning, quit telling us how the US is the next Greece or Spain. He does know how stupid that sounds, right?
I want to say the Dow over 17,000 is now history. I want to say, if it stays here for a while to consolidate, the market future near and far is bright. I want to say that getting your money into the market now is the right thing to do.
I want to say Happy 4th of July to everyone who enjoys life in the US. I want to say more, but since this a short day in the market and tomorrow is a no day in the market, I will let the data speak, sort of …
- The trade deficit in the U.S. narrowed more than forecast in May on record exports, signaling a pickup in global growth that will boost American manufacturers.
Record US exports is a fine thing indeed and a smaller trade gap is as well. The former speaks to US manufacturing, which suggests one big reason the US economic momentum is increasing is because manufacturing is getting healthier. And US manufacturing is getting better because demand for US products in the global economy is getting better. Even though manufacturing is a relatively small part of the US economy, it does contribute to US economic health in a big way.
- In 2013, manufacturers contributed $2.08 trillion to the economy, up from $2.03 trillion in 2012. This was 12.5 percent of GDP. For every $1.00 spent in manufacturing, another $1.32 is added to the economy, the highest multiplier effect of any economic sector.
- Manufacturing supports an estimated 17.4 million jobs in the United States—about one in six private-sector jobs. More than 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.
And this brings us to something else I want to say … How about that five straight months of job creation over 200,000 and how about that three-month average of 272,000 jobs created in the US?
- The increase in the number of new jobs (288,000) was well above the consensus estimates for an increase of 218K and also above May’s revised 224K.May’s report saw an increase of 7K from 217K to 224K while April’s job totals was also revised higher by 22K to 304K from 282K.This means the economy created 29,000 more new jobs in the prior two months than had been previously reported.
I want to say even more, but the data is saying it so clearly, I feel compelled to let the data just keep on talking, but the fact is this kind of good economic news should and does bring considerations, important things to think about regarding the market, so here are three.
- This week’s job growth numbers would seem to confirm that the economy is finally on decent footing. The key questions at this stage are: (a) whether or not the economic growth is sustainable …
Yes, of course the economic growth is sustainable. Not only is sustainable, it is bound for glory, so to speak. The US economy is only closing in on what it will become in the next few years.
- (b) whether or not the current growth will cause the Fed to act sooner than expected …
Yes, if the second half of the year follows through on the promise of today, we can expect two things from the Fed early next year. One, the Fed will probably expedite the exit from its bond-buying program and 2) it will begin letting interest rates rise sooner rather than later.
- (c) whether or not inflation begins to percolate.
Arguably, this is the most critical consideration of all. If core inflation (excluding food and energy prices) rises quickly, the Fed could be pressured to act more swiftly and with more resolve in raising interest rates to keep inflation under control. Now, why would core inflation rise quickly? The answer is found five straight months of job creation over 200,000.
- With new applications for jobless aid trending lower and the share of businesses that cannot fill open positions rising, there is little doubt the labor market is tightening.
You see, core inflation is, essentially, a measure of wages. As we see in the technology sector, jobs are tight and getting tighter with less than 1% unemployment. The effect of this tightening is higher wages to attract job candidates. This tightening appears to be spreading to other sectors of the US economy, and, as it does, wages will rise, which will push up overall inflation. Prices of everything begin to rise because it costs more to produce products. Add to this an unstable pricing structure in oil, and, well, just keep it in mind.
On the other hand, rising wages also means more consumer spending, which means more production and services are needed, which means a higher GDP, which means a higher market because companies are making more money.
I want to say being okay economically is all about balance, as it is in the market. True, I have said the latter many times before, but it is so important, it bears repeating. However, I don’t need to say it right now. I will wait for a more appropriate time. At the moment, I want to enjoy the Dow climbing above 17,000.
Enjoy the 4th everyone …
Trade in the day; invest in your life …
