As Mr. Market navigates through an ever-changing landscape, one emerging trend stands out: wages are increasing at a rate that significantly outpaces inflation. This trend has been consistently observed over time, prompting the question: what does this indicate for the economy?
To examine the evidence, we refer to the Labor Department’s recent report, which revealed that average weekly earnings rose by 4.5% in December on a seasonally adjusted basis—this is more than double the annual inflation rate of 2.0% reported in November.
This surge in wages is not a transient occurrence; data from NoSpinForecast.com illustrates that the annual growth in earnings has been steadily rising for some time. In fact, we haven’t seen wage growth above 4% annually since the late 1990s.
As we enter this new year, we find ourselves amidst a renewed debate regarding the economic outlook. This conversation, cyclical in nature, reappears as we assess the direction of the economy. The latest insights from the Labor Department regarding employment have contributed to this dilemma. In December, unemployment held steady at a low 4.5%, while nonfarm payrolls increased by 167,000.
When reviewing the monthly payroll changes over recent years, we must consider whether this trend suggests an impending slowdown in economic activity. A surface-level examination of these figures might leave analysts cautious about drawing firm conclusions. Employment dynamics are a significant factor influencing economic health.
Last year witnessed a robust bullish trend across major asset classes, as noted in our previous analyses. This positivity was evident even within individual equity sectors.
When dissecting the S&P 500 into its 10 sectors, it becomes clear that 2006 was a successful year for large-cap equities from all angles. Our tables below highlight that sector-wise, gains were widespread last year.
Among the sectors, healthcare emerged as the laggard with a modest 5.8% price increase, less than half of the S&P 500’s total price change. On the other end, telecom services took the lead, surpassing energy, which had performed strongly in both 2004 and 2005.
The January issue of Wealth Manager includes a review from your editor focusing on the growing array of ETFs available in the core domestic-equity sector. For those tracking the expanding ETF market, it’s clear that new options are emerging weekly. For a detailed overview of the core equity space along with a recent inventory of offerings, read on….
Today the U.S. markets are closed in observance of President Ford’s passing, yet this pause in trading does not dampen the optimism surrounding last year’s performance across major asset classes. As detailed in the table below, 2006 proved to be an exceptionally strong year.
This strong performance is characterized by broad gains across all sectors. As previously discussed, it’s rare for all major asset classes to report positive results in a given year—a trend that was once uncommon. Since 2003, bull markets have become a familiar scenario, though it’s vital to differentiate a rising trend from a fundamental shift in economic principles.
As 2006 draws to a close, CS will take a break from publication and will resume on January 2, 2007. To all our readers, best wishes for a prosperous New Year! Out with the old and in with the new—may it be a bright year ahead. Cheers!
It’s worth acknowledging our unsung hero, Joe Sixpack, who consistently rises to the occasion.
Skeptics predicted he would cut back on spending, potentially pushing the economy into a downturn. Yet month after month, Joe surprises the experts, including last month.
According to the Bureau of Economic Analysis, personal income increased by 0.3% last month. However, Joe and his fellow citizens decided to boost their spending by 0.5% in November. Notably, there was a sharp increase in durable goods purchases, which are typically the most volatile and cyclically sensitive part of consumer spending.
Recent fluctuations seem to favor heightened spending on durable goods. The chart below illustrates a strong rebound in personal consumption expenditures (PCEs) following the steep decline observed in August.
August’s 1.5% drop in durable goods spending had suggested potential trouble ahead for the economy, particularly amid concerns over a housing market correction. Yet, months later, the fear that this correction would drive Joe to conserve his income appears unfounded. Was the initial concern simply premature?
If you’re searching for additional reasons to be concerned about the future of global oil production, consider the recent news regarding Royal Dutch Shell’s forced sale of its majority stake in the Sakhalin-2 oil and gas project in Russia to the state-controlled Gazprom.
This morning, the government released the third and final update on the third-quarter GDP. Readers accustomed to following these updates will find the numbers unsurprising. The annualized real growth rate was 2% for the third quarter, slightly below previous estimates and consistent with the latest consensus outlook from economists.
The previous GDP estimate has been revised down from 2.2%. More significantly, the final 2.0% figure for the third quarter indicates a deceleration compared to the 2.6% growth in the second quarter. Overall, the economy is still in a slowing phase, as many expected. So, where do we go from here?
While bull markets have flourished globally in recent years, the alarming news from Thailand serves as a timely reminder that market prices can also decline. The turmoil began when the Thai Finance Ministry announced a “lock-up” scheme to limit capital inflows, leading to a mass exodus of investors selling their holdings. As a result, the Thai stock market plummeted by 15% by Tuesday’s close, although it has since recovered a significant portion of that loss.
