A ton of economic data dropped last week and the markets clapped back.
The markets also reacted to a new and improved...wait for it...round of tariffs announced last week! The White House announced tariffs on $7.5 billion in European goods that will take effect on October 18. To make thinks more interesting, the Trump administration plans to raise tariffs to 30% from 25% on $250 billion worth of Chinese goods on October 15th.
Paying attention to economic indicators can provide a sense of where the economy is headed and can help to position investment portfolios to take advantage of asset classes that do better in certain economic cycles. So, what are these indicators? There are two categories: leading and lagging. Leading indicators occur before something major in the economy goes down so we can use these to predict how the market may move in the future...kinda like a crystal ball...a Baccarat one preferably dipped in glitter. Lagging indicators, can be identified after an economic trend or pattern has been established and they reflect the economy's historical performance.
Let’s rundown the major indicators that weighed in last week:
Manufacturing Trends – Leading Indicator
An increase in manufacturing activity would suggest more demand for consumer goods and by association, a healthy economy. Manufacturing data released last week showed a contraction for the second straight month which caused markets to decline 2.5% over the course of two days. Manufacturing accounts for less than 10% of output and 9% of jobs created. Though manufacturing is a small segment of the economy, its significance is important because its performance is correlated with a rising or falling economy.
Consumer Spending – Leading Indicator
I scream! You scream! We all scream for...shopping! If consumers are spending, then that is a sign of a healthy economy. The
September jobs report
was released last week and showed that wage growth slowed a bit last month to 2.9% from 3.3% in August. This slowing is still above the average pace of wage growth of 2.3% over 10-years. Growth in real wages drives consumer spending, which accounts for more than two-thirds of the U.S. economy. The current pace of wage growth signals that the labor market is moderate and strong enough to support consumer spending.
Unemployment – Lagging Indicator
In a healthy economy, the unemployment rate is anywhere from 3% to 5%. When unemployment rates are high consumers have less money to spend...on shoes and makeup (AKA: glam essentials). This negatively affects retail sales and
GDP
...and of course the stock market. The
jobs report
released last week still shows unemployment at a 50-year low. The economy created 136,000 jobs in September, a little short of the 145,000 jobs expected by Wall Street Nerds. Over the course of 2019, the economy has produced an average of 160,000 jobs a month compared with 223,000 last year. Though lower than last year, this pace of job growth is still higher than the 100,000 jobs-per-month average Wall Street Nerds think keeps the economy moving forward.
