Employment gains and your money -- Your Weekly Update

Remarkably good news on the employment front just a week ago was suddenly eclipsed by a steep two day decline in the stock market last week.

We invested.

This week’s Update looks at the recent employment data carefully. We think you’ll enjoy reviewing this good news, especially in light of recent goings on.

All the best,
Lee and Jeremy

PS—We’ll be sending along another invitation, but mark your calendar for the OPENING NIGHT MOVIE PREMIER—all on us—to see “When The Game Stands Tall” starring perhaps Hollywood’s hottest actor, Jim Caviezel, August 22nd at 7 p.m. It’s great for kids too… we hope to see you there!


This Week’s Quote:

“The crowning fortune of a man is to be born to some pursuit which finds him employment and happiness, whether it be to make baskets, or broad swords, or canals, or statues, or songs.”
― Ralph Waldo Emerson (American Poet, 1803-1882)


JL Davis Thoughts This Week:

Last week some of the Davis family who live in the Los Angeles area came to Colorado for a brief visit. Part of their trip involved heading to downtown Denver to see the sights, where they said they spotted a “help wanted sign” in virtually every window they passed by...and construction detours in their path everywhere. Here in Colorado, with some of the best employment statistics information, this was no surprise.

But it doesn’t seem just to be relegated to Colorado any more than it is to the other thirty or so states we do business in.

Just a few days ago, the Department of Labor released some dramatically good news. Their detailed report, which we review regularly, showed that initial jobless claims fell to the lowest level in over eight years. Like us, you probably thought things were pretty good in 2006! Yet today’s employment numbers are even better.

On the surface, one would therefore think the U.S. economy and the U.S. labor force has turned the corner and started to grow. Simply put, more people working means more spending. Understanding that two thirds of the US gross domestic product is made up of consumer spending, there is no doubt in the positive nature of the report…more workers equals more money to spend.

Yet even in the face of such resoundingly positive numbers, media headlines scream about the “participation rate”, citing that about 27% of the total population in the US is not employed. This is where the discussion gets really interesting, given the demographic trend of the baby boomers, which is rather like a python that mistakenly swallowed a Volkswagen. Baby boomers are now retiring in droves and they will be every year in the foreseeable future. So when coupled with disabled and other retired workers, it seems natural that the participation rate would be where it is.

Interestingly, the media leaves out the fact that the participation rate is actually getting better. That’s not just opinion, that’s fact borne out by the recent data.

We’ll have more to say about what we’re seeing in our upcoming monthly letter you’ll be receiving in a week or two. But for now, in spite of the recent volatility of the markets, we feel pretty good about things.**

Lee and Jeremy


Market Week: August 4, 2014

The Markets

A strong GDP report, generally positive corporate earnings, and a slightly more optimistic outlook from the Fed couldn't offset the ongoing stream of bleak news about geopolitical problems and investor desire to take some money off the table. The Russell 2000's recent losing streak spread to the large caps as the S&P 500 had its worst week of the year. Argentina's default on sovereign debt helped prompt a selloff on Thursday, which cut 317 points from the Dow and sent it back into negative territory for the year.


Last Week's Headlines

• The initial estimate of 4% U.S. economic growth in Q2 showed a strong rebound from Q1's 2.1% contraction. However, the Bureau of Economic Analysis's initial estimate is subject to revisions over the next two months (for example, the initial Q1 estimate showed a 0.1% gain). Increases in exports and consumer spending (especially on durable goods) as well as more business inventory investment and state/local government spending drove the gains in gross domestic product.
• The unemployment rate ticked up slightly to 6.2% in July but was still at its lowest level in almost six years and more than a full percentage point below a year earlier. The Bureau of Labor Statistics also said the 209,000 new jobs added to payrolls in July roughly equaled the average monthly job gains over the last year; though that's down from the pace of the last three months, July was the sixth straight month in which 200,000+ new jobs have been added.
• Home prices continued to improve, but at a slower pace. All the cities in the S&P/Case-Shiller 20-City Composite Index report issued last week saw increases, but the 9.4% increase over last May was down from the previous month's 10.8% year-over-year gain.
• The Federal Reserve's monetary policy committee continued to reduce its bond purchases, cutting them to $25 billion a month. The Federal Open Market Committee statement noted increased spending by both consumers and businesses as well as improvements in employment, though it also said there continues to be slack in the labor market. It also said that as long as inflation remains below 2%, its target interest rate is likely to remain at its current level for "a considerable time" after new bond purchases end completely. However, the moderately more positive language plus hawkish comments from one committee member helped elevate concerns about the timing of rate increases.
• Both the European Union and the United States attempted to increase pressure on Russia to end support for Ukrainian rebels. Previous sanctions have been largely directed toward individuals; the new measures are expected to affect Russian banks, the country's oil industry, and the military. The EU agreement is designed to isolate Russia economically without hampering Europe's fragile economic recovery.
• After Argentina failed to reach a settlement with large holders of $13 billion of sovereign bonds that have already been restructured once, Standard & Poor's declared it in default on other interest payments. Coupled with a quarterly loss reported by Portugal's second-largest bank, Argentina's debt problems once again raised questions about the resilience of emerging economies.
• Trustees of the fund that finances Medicare reported that slower growth in federal health-care spending as a result of the Affordable Care Act appears to have helped delay by four years the date by which Medicare is expected to run out of money. The trustees now see that occurring in 2030. Social Security is expected to be solvent until 2033, but trustees of the Social Security Trust Fund said that unless action is taken, a shortfall might require cuts in disability benefits starting in late 2016.
• According to the Commerce Department, U.S. construction spending slumped nearly 2% in June. However, that was still 5.5% higher than in June 2013. Both public and private spending on residential and commercial building fell.
• The Institute for Supply Management said U.S. manufacturing continued to accelerate in July as its survey of purchasing managers rose to 57.1 from 55.3 (any number above 50 indicates expansion).


Eye on the Week Ahead

Investors will try to gauge whether last week's downdraft was the start of something bigger or a much-needed breather for a lengthy bull market.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.


Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2014