We surpassed the 10-year mark of economic recovery,
which started in 2009. The average expansion since
World War II, according to the National Bureau of
Economic Research, is just under five years. Whether
the current one continues or not might come down to
three important macro-trends: employment, housing, and manufacturing.
The government released gross domestic product
numbers for the first quarter of 2019 from 2.2% to
3.2%. This has caused some to reevaluate growth,
especially given the current global economic climate
(think Brexit, China, etc.).
First, it appears that the unemployment number is
going to remain at historically low levels, although the
number could vary widely from month-to-month. Job
postings have recently been at record highs, but an
issue is the lack of the required job skills for these jobs.
With the retirement of baby boomers, we can expect
that the labor participation rate (those working plus
those looking for work), which has been on the
downswing since the recession, will eventually
While this seems to be a positive, a lot of intellectual
knowledge will be lost, along with the required skills
needed, to replace the retiring boomers. This will likely
force businesses to train their own workers, and not
leave the task to schools. A tighter labor market could
also lead to some wage inflation, as those with the
skills will be in very high demand.
Given the growth in jobs, it is hard to imagine a
recession any time soon.
Next, housing appears to be continuing its rebound,
with acceleration for both existing and newly built
homes, although expectations are for growth to slow.
And the rebound appears to be inconsistent from
month to month. There is also a bit of a pull and a push
as a result of slowly rising interest rates and a lowering
of some borrowing standards.
Nonetheless, many first-time homebuyers have
repaired their balance sheets by accumulating enough
money to make a down payment on a home, albeit a
relatively modest one. In many places around the
country, the inventory of existing homes for sale is very
limited as a result of the high demand.
Lastly, manufacturing will have a significant impact on
the GDP number for the year. The chronic loss of
American factory jobs to lower-cost nations – millions
of them went away over the past two decades –
appears to have reversed itself – for now. Last year,
264,000 new manufacturing jobs were added,
representing the highest number of new workers since 1988. As a percent of the total workforce,
manufacturing rose for the first time since 1984.
Earnings drive stock prices
With all of that said, it will be up to companies to
increase both their top and bottom lines to produce the
earnings required to drive the equity markets forward
at reasonable valuation levels.
But investors should also remain aware of the macrotrend
lines when it comes to employment, housing, and
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