<\/p>\n
One month ago there were simultaneous indications of an accelerating, and slowing, U.S. economy.\u00a0 Yesterday and today we have a similar situation with an improving jobs situation and a tepid reading on gross domestic product (GDP).\u00a0 The question: is the U.S. economy heading up or down?<\/span><\/p>\n First up, yesterday, the U.S. Department of Labor reported that weekly initial jobless claims fell by 24,000 to a level of 398,000.\u00a0 While the four week moving average fell 8,500 to to 413,750.<\/span><\/p>\n Second up, this morning the U.S. Department of Commerce reported that gross domestic product (GDP) in the second quarter grew 1.3%, while first quarter growth was revised from up 1.9%, to up 0.4%.<\/span><\/p>\n Analysis:<\/strong><\/span><\/p>\n Initial Jobless Claims<\/span><\/p>\n For the first time in many weeks initial jobless claims fell (barely) below the critical 400,000 level.\u00a0 Jobless claims below that level can loosely be interpreted as meaning that the U.S. economy has added a net amount of jobs.<\/span><\/p>\n While this is a victory, it is a minor one.\u00a0 The fact remains that U.S. businesses are not hiring.\u00a0 And because of that, U.S. consumers are spending at flat levels – very few big purchases and only the necessities.<\/span><\/p>\n For the economy to get on a more robust footing businesses have to have growth opportunities that lead them to want to spend all of their accumulated cash.\u00a0 Those growth opportunities will lead to job hires.<\/span><\/p>\n In the meantime, there just has to be more than one week of a positive jobs situation in order to get excited about it.<\/span><\/p>\n Gross Domestic Product<\/span><\/p>\n That first quarter GDP was revised so sharply downward is shocking…yes, really.\u00a0 Basically it means that the U.S. economy just missed dipping into negative territory in the first quarter.\u00a0 It also calls into question the quality of the second quarter GDP estimate.<\/span><\/p>\n If the first quarter number can be revised down by 1.5%, and second quarter GDP was just 1.3%, it suggests that the U.S. economy may have double dipped into recession.<\/span><\/p>\n I guess another way to look at would be that first quarter gross domestic product was 0.4% and second quarter GDP was 1.3%, so there might be an accelerating economy.\u00a0 But frankly, all<\/strong><\/span> of the economic news lately has been anemic.<\/span><\/p>\n Importance grade: <\/strong>10; these are the two grand daddy statistics of economics.\u00a0 Right now both stats suggest fragility.<\/span><\/p>\n What To Do?<\/span><\/strong><\/span><\/p>\n As I have written about many times before, mixed economic signals are an indication of an economy in transition; an economy at an inflection point.\u00a0 But here we are not getting mixed signals about the economy, we are getting consistent signals of a sideways economy.<\/span><\/p>\n On the positive front, however, corporate profits for the second quarter have been consistently positive and, in some cases, strongly positive.\u00a0 So there may be relief on the new job hiring front that would set into motion a virtuous circle.<\/span><\/p>\n But, in general, this inflection point makes it very difficult to handicap the future direction of the U.S. economy.\u00a0 Why?\u00a0 Because the economy is weak enough that major news events, like the Middle Eastern revolutions, the earthquake in Japan, the Greek debt crisis, and the U.S. debt crisis all have the ability to derail the national mood.\u00a0 And some of these events, like the earthquake, just are not predictable.<\/span><\/p>\n So right now, it is difficult to have enthusiasm for the riskier asset classes, like equities.\u00a0 However, that said, U.S. businesses are experiencing profit growth.\u00a0 But if the U.S. debt crisis is not resolved soon it will be a drag on the economy, and the equity indices around the world are likely to fall.\u00a0 So that would normally suggest investing in a safe haven.<\/span><\/p>\n But for gods sakes, can I really endorse investing in U.S. debt?\u00a0 Debt that might see a default event in the next several weeks?\u00a0 No.\u00a0 What about cash?\u00a0 Cash looks interesting (never thought I would say that).<\/span><\/p>\n But what looks very interesting to me, are equity investments in countries whose currencies are appreciating relative to the dollar, like Europe.<\/span><\/p>\n What also looks interesting to me is U.S. corporate debt.\u00a0 Why?\u00a0 U.S. corporate profits are up – so credit worthiness is up.\u00a0 That might result in credit ratings upgrades and a resultant capital appreciation.\u00a0 In the meantime, the yields are between 3-9% depending on the credit quality.\u00a0 And those yields trump the returns that look likely to unfold from a U.S. suffering from an uncertain debt future.\u00a0 So a mutual fund that invests in U.S. corporate debt is worth examining.<\/span><\/p>\n As I look back at the investment advice I have given on the blog over the last several months I have to apologize for the inconsistency of my recommendations.\u00a0 I am not blameless.\u00a0 It’s moments like this that make this former investment manager feel very human.<\/span><\/p>\n Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" One month ago there were simultaneous indications of an accelerating, and slowing, U.S. economy.\u00a0 Yesterday and today we have a similar situation with an improving jobs situation and a tepid reading on gross domestic product (GDP).\u00a0 The question: is the U.S. economy heading up or down? First up, yesterday, the U.S. Department of Labor […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-4570","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4570","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=4570"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4570\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=4570"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=4570"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=4570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}