- Inflation is cooling, but still above the 2% target of the Federal Reserve. Core CPI (consumer price index) is currently at 5.3%.
- Wage inflation has slowed and is currently running below the inflation rate.
- The jobs economy remains sound, according to the Labor Department job openings are about 1.8 times the number of people seeking jobs.
- Supply chains for businesses are normalizing.
- The banking crisis from earlier this year appears to be behind us, as bank earnings are better than expected.
- Measures of business are consistent with a low growth economy.
- Consumer spending remains positive with growth in spending in the single digits.
- Investment markets have been stronger than expected, helped by a sudden emphasis on Artificial Intelligence (also known as AI) and expectation we will escape a recession.
- Corporate profit margins remain above historical averages.
- Interest rate hikes appear to be coming to an end.
- After 2 years of recession predictions, analysts are beginning to forecast continued economic growth.
These points paint an optimistic picture at this moment in time. However, there are always potential storm clouds on the horizon including corporate spending is now more frugal, certain industries are experiencing layoffs, hours worked per week are slowing, and consumer spending is now targeted towards items of daily living. Add in the potential for more Federal Reserve interest rate hikes and the possibility of a recession are higher than normal.
As for the financial markets, performance has been driven by an emerging emphasis on Artificial Intelligence. AI in simple terms is programming computers to simulate human thought by storing billions of bits of data that go into decision making and using that data for humanlike decisions. While it has tremendous potential and could be the New Future, it also has potential problems not even perceived of yet. In my opinion, the markets are way too early by trying to sort out the winners in this market. Time will tell how companies can use AI effectively, whether by increased sales or reduced costs.
My take on all of this is pretty simple. Consumer spending drives nearly 70% of our economy. In the last 3 years, consumers have been paid multiple lump sum payments from the Federal Government, have seen wages rise substantially, have witnessed the value of their real estate skyrocket, and have now begun to see their investment accounts grow again. So as long as unemployment is below 4% and people have money in the bank, this economy should keep moving forward. The old saying still holds true…put money in people’s pockets and they will spend it.
Financial shocks happen from time to time and will happen again. Therefore, we must remain diligent, keeping our eyes out for any potential problems. None of this changes our investment philosophy, purchasing the stocks of dividend paying American companies and other interest paying investments. Reinvest the dividends into additional shares and use time as our ally in your long-term financial plan.
As we enter the dog days of summer, we hope you have been making wonderful memories with friends and family. Summer is truly special. Please don’t hesitate to send questions along to me, and Your 2 Cents of what you see in your business, work, or life. Feel free to pass this along to anyone else you know.
