We had a big debate on some issues this morning as some economic news from last week got Greg really fired up. Volatility was a theme last week even though there were some good economic reports, especially on the job front and labor participation. A reported 280,000 new jobs were created in May which were considerably higher than expectations.
Do economists think we are idiots?
As we listen to the economic reporters, we have to ask, “Do economists think we are idiots?” Of course the employment numbers are higher in May. Thousands of universities across the nation just had graduation. All those new graduates have moved back home and their parents are now saying, “Go find a job.” Maybe we should call it “job inspiration” instead of job participation.”
Where are the new jobs?
Most of the new jobs were created by small and midsize companies which is very important for a growing economy. We are at a point, however, where more good news like this could make the Fed raise interest rates sooner. We are watching to see if these job numbers are a trend because we believe the Fed won’t raise rates off of one month’s reports. Be careful because politicians and the news media will keep hyping this up because they need to sell ads and stay in the public eye.
The DOW Theory breaks down
For years the financial industry has had a DOW theory: This theory states that as the larger companies in the DOW go up, the Transportation Index will follow suit. This is true about 50% of the time. Currently the DOW is up but the Transportation Index is off 6.9%. There are four reasons for this; technology, less manufacturing and more service, transportation stocks were high last year, and natural gas is being used more than coal lowering the energy stocks.
Politics and bureaucracy are slowing down economic growth
The month of May was one of the best on record for the most announcements of mergers and acquisitions. Rates are low and money is cheap which has helped companies buy their competitors. This, in turn, can boost the economy. The problem is that while there are more announcements of mergers and acquisitions, we are not seeing many of these deals closing. The Justice Department and the FTC have extended the average closing to 10 months. In the past it has been as low as 3 months. This is another example of how politics and bureaucracy are slowing down economic growth.
Two key things to watch this week
Retail sales and the Consumer Price Index numbers will be reported this week. Retail sales account for two thirds of the economy so this report will tell us if consumers are still saving money or if they are beginning to spend it. We will be looking at inflation from the PPI report as it measures this on the production level.
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