Several days ago, the Commerce Department reported that May’s factory orders had increased by a 2.9 percent. This was well covered by ‘the press’, as it was to be a positive influence on ‘the market’ (yes, the quotes are intentional…..you’ll see why). The enthusiasm was understandable – the $394 billion in orders of manufactured goods is the highest level seen since the current calculation method was adopted. Although being skeptical can be wise, the figure was (and is) a clue that the economy is on a solid footing. However, too many times there’s a disconnect between what ‘should’ be the result of a piece of economic data, and what actually occurs. The economy isn’t the market. Investors can’t buy shares in factory orders……they can only buy (or sell) stocks. Regardless of how strong or weak the economy is, one only makes money by buying low and selling high. So with that, we put together a study of some of the economic indicators that are treated as if they affect stocks, but really may not.
Gross Domestic Product
The chart below plots a monthly S&P 500 against a quarterly Gross Domestic Product growth figure. Keep in mind that we’re comparing apples to oranges, at least to a small degree. The S&P index should generally go higher, while the GDP percentage growth rate should stay somewhere in between 0 and 5 percent. In other words, the two won’t move in tandem. What we’re trying to illustrate is the connection between good and bad economic data, and the stock market.
Take a look at the chart first, then read our thoughts immediately below that. By the way, the raw GDP figures are represented by the thin blue line. It’s a little erratic, so to smooth it out, we’ve applied a 4 period (one year) moving average of the quarterly GDP figure – that’s the red line.
Staffing your office in this new economy has never been more challenging. Posting on job boards will get you hundreds of non qualified candidates that will waste valuable time for your already limited office staff. You may have already faced some of the challenges listed below.
Do you have current employees that you should replace but do not have the time and/or ability to do it in secrecy?
Are you wasting time talking to applicants who can’t follow directions, show up dressed inappropriately, or just don’t qualify?
Do you have a current database filled with 14,000 candidates that were previously interviewed to assist your screening process?
Are new employees drug screened, background checked, and is past employment being verified?
Do you have a plan for the H1N1 (swine flu) outbreak when it attacks your office?
Are immigration laws being followed so Sheriff Joe does not pay a visit to your facility?
Many staffing companies claim that they perform duties you take for granted. What would you do if you had a legal issue and your staffing company was not doing the proper due diligence? Most companies believe in error, that this will be a problem for the staffing vendor. THAT IS INCORRECT. The company will be the ultimate backstop for any litigation. Deeper pockets (your company?) require protection from the staffing company doing the job you pay them to do. Please make sure you ask your staffing vendor for a ‘shadow file’. This is file that shows you the completed work on the candidate, including pre-employment drug screen. This way you will be sure your investment is being put to good use.
In 1954 America, the average middle class family had one black, metal telephone wired to a wall near the kitchen, one car with no seatbelts or GPS system, and one television receiving a handful of free, snowy channels from an antenna on the roof. By most measures, fifty years is not a long time, but in America, fifty years can be precisely measured in price tags, pie charts, top-ten hits, hairstyles, hemlines, movies, TV commercials, and a decade-by-decade calendar of trends and products we created, manufactured and sold to each other. In the developed world, America represents the best working model of capitalism and free enterprise. Muddled by our democratic process, and flawed by its inherent inequalities, our interpretation of capitalism is the most influential economic force in the global community.
Fifty years has so many markers in our country because in our economy change must rule the day. Change means new ideas, new products, new jobs, and new money to fuel new ideas. One of the downsides of the system, however, is that people become so consumed by the process of managing their own complex lives, that they lose perspective of their true context as elements of the economy, and by extension, as a nation in the global community.
In America, the emphasis on today is trend economics by design, but it is important to step back and include the valuable lessons of history in today’s thinking. This is a nation built on the pursuit of ideals, and strengthened by the ingenuity and diverse fabric of its society. A nation of immigrants that became a nation of Americans with many faces, in a world of nations that became a global community. The realities that flow from these truths are the foundation of the future for an America that is no less capable, but as a society, perhaps less able to see the bigger picture, and less willing to evolve. This is no more evident than in the debate over who gets the jobs of American companies. It is less a question of entitlement than a matter of understanding history and of how our economy works. A system that demands more of everything to survive cultivates a society of individuals that functions on the same premise. The very nature of capitalism imposes powerful influences and pressures on society to achieve and consume, but in that process the broader context of issues is over-shadowed by an ever-narrowing focus on achieving personal goals. Objectives become expectations; opportunities become entitlements.
Many commentators are saying that the recent economic downturn is not just another recession but a “resetting” (or “rebooting”) of the economy. There are a number of different reasons for such statements, and they tend to vary according to any commentator’s personal interests or field of expertise. This in no way invalidates them, but you do need to be careful how you interpret them.
You see, any recession is, virtually by definition, a resetting of the economy. Furthermore resetting an appliance or rebooting a computer implies that the device will effectively sort itself out and restart quite normally. There is no clear expectation of change from this analogy. Thus there is a danger in glibly accepting it, for without any shadow of doubt, this economic crisis presages change. We simply cannot afford to continue the way we were going.
In previous recessions the remedy has been to spend our way out of trouble. This has been facilitated by stimulating borrowing. Cheap credit has encouraged optimism and fueled growth. In this instance, however, excessive lending caused the recession and makes that a more risky strategy. You can argue that excessive borrowing is the cause of all recessions, but this one is different because the amounts borrowed to rescue the failed banking system have created unprecedented levels of debt. This limits the potential for future borrowing. Consequently, there is no longer the same scope to grow through additional borrowing. You could say that there will be a new normal for the amount of trade that will be possible and it is likely to be considerably lower than the pre-recession trade levels.
A number of economic forecasters are predicting that the overall economy will be sluggish in 2011. The principle reason for this is that a major portion of economic activity is related to the housing industry, and the prospect of a double dip recession in the housing industry seems to be a stronger possibility as time goes on. The main reasons for this dour forecast are the fact that the unsold inventory of homes is very high, job creation overall is weak, the housing market is flooded with foreclosures and has more on the way, and housing prices have been trending down for a number of months. This article will discuss each of these issues.
The inventory of unsold homes on the market is very high. In fact it is about 80% higher than normal. Most housing analysts feel that until this figure is brought down to a normal level it is likely that home prices will continue to drop. Currently the level is about 3.7 million unsold homes. In general, when potential buyers feel that housing prices are going to go down, they will not be motivated to buy and will wait to get a better price.
Everyone is acutely aware that the level of unemployment is very high. This fact is clearly holding down home investments. Beyond this, however, is the fact that even people who hold jobs seem to be lacking confidence about how secure their employment picture is. They are in many cases afraid that one or both spouses will lose their jobs or might have hours cut back. They are afraid that if that were to happen then they would become one of those statistics of people who owned a home but could not afford to pay for it.