Markets Up To Mother’s Day
Reading economic portents can be tricky.
For example, do signs that economic growth is slowing – like last week’s employment report, which was anemic relative to consensus forecasts, and first quarter’s gross domestic product (GDP) growth – mean the economy is headed for trouble? Or, does it mean the economy is going to continue to grow slowly?
It all depends on whom you ask (and, unfortunately, what they are selling).
Some see current lackluster economic data as a harbinger of trouble. Last week, Barron’s cited an expert who was concerned about employment data. “…It could be a sign of trouble…Specifically, falling profit margins will put pressure to trim costs and head counts later this year and into 2017, which would slow consumer-spending growth.”
Others believe the United States is destined to experience a persistent period of slow growth. In 2013, Barron’s suggested the enviable pace of growth in the United States since World War II was likely to decline, along with the size of its working-age population and gains in worker productivity. The new era:
“…could have broad repercussions that will affect not only the pugilists in Washington but businesses and investors. Weaker growth will make it harder for companies to improve earnings, fatten dividends, or garner better stock returns. It also threatens to fan social inequality and class tensions and limit the ability of government to fund various entitlement programs like Medicare and Social Security. Tax revenues also are likely to fall short of projected levels.”
Of course, a lot depends on how you gauge growth. A 2009 discussion in a Harvard Business School blog asked whether slower growth, as measured by current indicators, was meaningful since, as this commentary mentioned last week, gross domestic product (GDP) is a flawed indicator. “Further, in an age of concern about the environment, questions are raised about whether certain forms of growth – let alone incorrect measures – serve a very good purpose.”
Investors expressed their opinions last week. They weren’t thrilled by mixed economic data or the possibility of slower growth. Reuters suggested markets’ downward shift indicated a reduced appetite for risk.
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* “Markets Up To Mother’s Day”