During the last few weeks and certainly the last few days, we’ve seen uncertainty come roaring back into the stock market. Leading the uncertainty brigade was the now seemingly drawn-out Greek drama, which has the European Union (EU) and Greece back at the negotiating table. Next up were Puerto Rico’s debt woes, and now we’ve got concerns about the Chinese stock market and a potential deal with Iran that could leave the global economy awash in excess oil.
Initially, it may seem as though all of the problems plaguing us are outside of the United States, but I’m afraid to say that’s simply not the case. For the last several months, we’ve had report after report that pointed to a slowing industrial economy here at home. Looking past official government statistics for confirmation, we find it in monthly and weekly truck tonnage and weekly railcar traffic data. Railcar loadings continued to slide in June and finished the month down 7.7% year over year. Even after year-over-year growth in intermodal shipments, total rail shipments (carloads and intermodal originations) were still down 2.3% year over year. Taking a step back reveals the weakness was not just in June, as total U.S. carloads fell 3.8% year over year for the first six months of 2015. With total carloads up modestly during the first quarter of 2015, sandbox math tells us the bulk of the year-over-year decline came in the second quarter.
If we are not careful to look at data sources outside the government, we could be lulled into a false sense that everything is “just grand.” That was certainly the message from the White House last week when it announced a 5.3% unemployment rate. I always say you need to go beneath the headlines to understand what’s really going on, and the June Employment Report was no exception.
Where to start?
- 432,000 people left the labor force in June compared with 223,000 new jobs being added during the month.
- The total job creation count for April and May was revised lower by 60,000 jobs.
- June’s labor force participation rate fell to 62.6%, down from 62.9% in May and 62.8% in June 2014.
- The number of people not in the labor force swelled in June to the tune of 640,000, bringing the total to 93.6 million. That’s about 29% of the U.S. population. Today, for every 100 people working in the private sector, 136 people are receiving some sort of government aid.
- June wage growth remained tepid, another continuing trend that reflects the kind of jobs that are being created.
- What was the single biggest-growth category in the report? Part-time jobs. Should we break out the balloons and noisemakers?
The bottom line is much like it has been during the last few years: the unemployment rate continued to fall in June for all of the wrong reasons. That same simple sandbox math I used a few paragraphs above shows us that when the number of people outside the labor force continues to grow faster than the number of jobs created, the unemployment rate will appear to be falling faster than what is really going on in the economy.
Amid all of this, we have to keep our investing wits about us and know which way is up and when to act.
As subscribers to the Growth & Dividend Report know, I tend to keep a list of contenders at the ready for just such situations. In the August 2015 edition of the Growth & Dividend Report newsletter, I’ve shared an updated iteration of that list.
Of course, any and all action that we take hinges on the data. Now, I don’t mean to sound like Fed Chair Janet Yellen here, but it’s the context and perspective offered by intersecting data points that has separated PowerTrend investing from traditional Wall Street research. It also means asking a lot of questions. At times like this when the market is full of uncertainty, I ask questions such as the following:
- Has the U.S. water infrastructure magically repaired itself?
- Will there be a slowdown in social media usage?
- Are we likely to consume less video on the Internet through Netflix (NFLX), Hulu or other streaming services? Will surging Internet traffic goose demand for companies that offer bottleneck solutions?
- Has there been an overnight shift in the healthy-for-you food that more grocery stores are making available because many consumers prefer it?
- Are we likely to see a rollback or removal in the recently set tanker car mandate that begins in October?
Each position in the Growth & Dividend Report has similar questions that I ask time and time again to check and double check the underlying premise behind them. As longtime subscribers know, I’m not shy about recommending we take advantage of pullbacks in the market to sweeten our position for the long term. Amid the current bout of market uncertainty and bracing for the strong U.S. dollar impact on upcoming corporate earnings, I’m already eyeing which candidates may become Growth & Dividend Report recommendations in the coming weeks.
I hope you’re thinking that as well. If not, you should be. Here’s how to get started.
Thematic headlines of the week. Each week, I digest a smattering of reports, surveys and other articles to make sure the tailwinds behind each of my PowerTrends, as well as my Growth & Dividend Report recommendations, are intact. As my subscribers know, when the thesis changes, we take action, which usually means booking profits. But every so often, it means limiting losses. Here are some of the items that caught my attention during the last week:
- Always On, Always Connected – McKinsey Global Institute – The Internet of Things: Mapping the value beyond the hype
- Rise and Fall of the Middle Class – More Jobs, But Still No Raises
- The Cash Strapped Consumer – Deloitte: Consumers abandon national CPG brands
- Always On, Always Connected – Google’s Plan for Self-driving Cars May Have Finally Been Exposed
- Living Longer Lives – Healthy food makes a fit body? Not so fast
In case you missed it, I encourage you to read my e-letter column from last week about how the U.S. economy fared in Q2 2015. I also invite you to comment in the space provided below my commentary.
- Each Monday, I join Sonoma County’s Morning News with Melanie Morgan’s “Big Story” of the week to talk about the latest in the economy, stock market and more.
- Each Friday, I join Matt Ray, the host of America’s Morning News, to talk about the latest on the economy, stock market and more. With the show broadcast in more than 170 markets, be sure to tune in.
- I will be attending the San Francisco MoneyShow, July 16-18, at the Marriott Marquis. To register, click here. Mention priority code 038970.
- I want to invite you on a cruise with Newt Gingrich, Mark Skousen and me, among others, Sept. 13-20. Spend seven fabulous days aboard the six-star luxury liner, the Crystal Symphony. We will travel from New York to Montreal with noted historical scholars, political pundits and renowned market experts who will share their insights and perspectives on the current environment in Washington and Wall Street. For further information, including how to sign up, visit www.PoliticsAndYourPortfolio.com.