GDP GROWTH DATA

The preliminary estimate for the second quarter of 2018 GDP growth rate was 4.1%, just missing consensus of 4.2%, with some analysts suggesting this will be the peak of 2018. The first quarter growth figure was revised down from 2.3% to 2.2%. While the quarterly GDP growth rate hasn’t been below 2.0% since the first quarter of 2017, it also hasn’t been above 5.0% since the second quarter of 2014, and it’s a long way from the 7.0% rate in the third quarter of 2003.

GDP Growth Rate (1/1/2002-07/27/2018)

INFLATION RATE DATA

The inflation rate climbed to a six year high of 2.9%, increasing anticipation of another  impending Federal Reserve rate hike at their next meeting at the end of July 31st. This creeping interest rate, especially after a period of relative stability, could indicate a lot things (largely negative) for the market.

Inflation Rate (1/1/2002-07/27/2018)

JOB NUMBER DATA

The job number data for June was a relatively robust 213K jobs after a 244K net jobs number for May. As it stands, before adjustments next week, the average net jobs for the second quarter was a solid 210.67K per month, putting it in line with the 211.67K created in the first quarter of 2018, however adjustments are, as always, expected.

Job Numbers (1/1/2002-07/27/2018)

LABOR FORCE PARTICIPATION RATE DATA

The labor force participation rate for June ticked upward to 62.9%, but it is still hovering around where it’s been since 2014, within a single percentage point of 40 year lows. The labor market remains critically weak, with millions of both young and experienced workers out of the labor market after the contraction in the aftermath of the increase of the minimum wage in 2007, 2008, and 2009 and the resulting sub-prime mortgage crisis.

Labor Force Participation Rate (1/1/2002-07/27/2018)

FEDERAL FUNDS RATE DATA

The federal funds rate is presently at 2.0%, and if recent meetings are any indication of the upcoming meeting of the Federal Reserve Board, then they will likely leave the federal funds rate where it is at least for a few months, however inflation is creeping up, and failure to get ahead of the inflation rate could create serious problems down the road.

Federal Funds Rate Rate (1/1/2002-07/27/2018)

GOVERNMENT DEBT DATA

The federal debt continues to climb, hitting $21,195,070,000,000.00 in June 2018, for an increase of $49,855,000,000.00 since May 2018. The federal debt has more than doubled since 2008.

Federal Debt (1/1/2002-07/27/2018)

THE READ

Jobs are being created, albeit at a slightly slower pace under the current administration than before, but many factors indicate solid growth. Unfortunately, beneath the surface, there remain too many signs of structural weakness in the market. The persistently low labor force participation rate indicates that the economy is not creating jobs for a large part of the population.

Sure, there are a lot of demand for high proficiency jobs in technical fields, but that demand will always be there, because the vast majority of the working age population just isn’t cut out to fill those sorts of high end jobs. What’s concerning is that there aren’t enough jobs for people in the lower and middle part of the economic structure to accommodate low skill workers who still need some way to provide for themselves, and that’s not happening.

The most worrisome part of the current economic situation is the rising inflation rate which could pose immediate problems in the economy. If left unchecked, it could climb to the point that cash strapped companies will be unable to afford to cover short- or mid-term expenses. Even if the Federal Reserve steps in and increases the federal funds rate, firms that are struggling may not be able to afford higher interest rates on credit.

Even though the minimum wage hit its current level almost a decade ago, there are many labor heavy industries out there still trying to figure out their labor costs. Until the minimum wage in this country is reduced to a reasonable level, the economy will remain in this state of perpetual cost driven stress.

 

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