Consumer spending continues to carry the torch and drive market growth
Last week was very important because the jobs number handedly beat expectations. In the jobs number data we see a wage increase and evidence that the consumer is spending more in the economy. We believe as long as we have this consumer spending, everything will stay steady.
While the wage growth is up, when you look behind the numbers you will see that most of the white collar wage growth came right after the recession. What we are seeing right now is a lot of blue collar growth which is embedded in state and local governments with an increase in minimum wage. While this could drive market growth, investors still need to be cautious about these numbers.
Caution about wage growth numbers
This wage growth is good but investors need to remember this growth has started with the lower wage earner. This statistic is not the same across the country. While it might be good in Silicon Valley, it is not as good in the mid-west. This might be why we are not seeing consumer spending as high as it should be.
We’ve seen the price of oil drop 25% since its peak and it’s finally dripping into the gas pump. At this time last year gas prices were $.55 more a gallon than where they are now. This is a huge boom to the average consumer. Historically, when we have this kind of boom, consumer saving increases. At this time, however, the savings rate has dropped down to 5.3%. While that’s bad for an individual balance sheet, it’s good for the economy. This could have a potential to increase corporate earnings and drive market growth.
The best opportunity to drive market growth
Between now and the end of the year we know we will not see any big government spending bills passed and few companies will be making any capital investments. So, when you look at what all the above data points to, the best and only opportunity to drive market growth is with the US consumer. Consumer spending is 70% of the market driver so we are getting market strength where we need it most. This is where we have the best chance of keeping this economy moving forward.
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