Goods vs. Services
For the last 50 or so years, the U.S. economy has been driven by a transition from goods production to services the reason that is positive things is that that model is very deflationary. It’s deflationary because the amount that individuals are able to spend on services, is limitless. The amount you can spend on goods is limited by the ability to produce goods as well as the individual’s ability to store goods. What we saw during COVID was a flip of that. As the world shut down, the U.S. consumer spent more on goods for the first time in a long time and we saw service consumption collapse. You can see on the chart shown in this video how during the pandemic, initially everything shut down but then as the economy slowly started to reopen, the consumption of goods really ramped up much faster than services. We have seen that reflected in the economy through inflation and increased prices. We see individuals talk about how the cost of goods in-store and online is going up. However, the market really has not been concerned about inflation, because the market believes it is temporary. What we saw in the data on these charts that is so important, is that recently the consumption of goods has started to dip. Previously, there was a couple of head fakes, but those head fakes coincided with the dip in service consumption so that proves to be an economic drop in consumption across the board. What is so interesting about the most recent dip in goods consumption, is that it is not paired with service. You see in the chart shown on this video, that services continue to expand. Last week, we talked about how lumber prices dropped 40% along with a drop in copper prices of 12%. We are continuing to see inputs drop and services expand, which is very positive for the U.S. consumer. That is how we need to get back to our long-term trend of economic growth without inflation. It is something we are going to have to watch closely going forward, but from an inflation standpoint and from an individual standpoint, this hits our clients where it matters and that is in their pocketbooks. From a market standpoint, services are much more profitable and that helps the profit margins of the U.S. economy and stock market.
June Jobs Report
We like to focus on the market-moving events of each week. This week, we are looking at the jobs report coming out this Friday for the month of June. It is especially important this week because it could set the tone for the third quarter of 2021 which starts Thursday. So far, this year, the economy has created on average 535,000 jobs each month. Economists are expecting the June jobs report to come in showing that 700,000 jobs were created. They are expecting the unemployment rate to fall to around 5.7%. Even though that number sounds good, it is still underwhelming because, at this pace, it will take the U.S. until the fall of 2022 to recover all the jobs that were lost during the pandemic. The most important reason that we are looking at the jobs report on Friday, will be to see what happens if it is a lot better than expected. If it is better, we want to see how the market reacts. A better-than-expected jobs report will put a spotlight on the Fed and what they say about tapering their bond purchases and timing of raising interest rates. For example, we had a great jobs number earlier in the year, but the market traded back due to fear that the Fed would use the strength in the labor market, to slow monetary stimulus. Therefore, we are anxious to see what happens on Friday and if the jobs report will start the third quarter of this year on a positive note. We have talked about this month in month out. If the Fed is being stimulative, it becomes all about jobs. It is really the only number that people need to be watching. If you need one number when you wake up in the morning, you need to know the jobs number.
We have been talking about the big market movers that will happen each week. A couple of weeks ago we mentioned the Fed’s meeting is a market mover. After that event, we saw a bearish tone in the market for that week. We saw quite the opposite last week when the market adopted a bullish tone with a record S&P 500 closing price of 4,280 on Friday. That pushes our new resistance level up to 4,320 and support level to 4,240. On Thursday of this week, tune in to our vlog for an educational episode on moving day averages and what they mean. Today the 50-day moving average is currently at a price of 4,192. Despite the volatility we have seen in the last couple of weeks, we are still seeing the 50-day moving average rise. We have talked before about that number being our base and support level from a long-term analysis standpoint so we will continue to watch this number close.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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