5/15/2014 8:47:00 AM What's the true nature of the economy?
Brad Blackburn, CFP®
Since 2009, our GDP has averaged a measly 2 percent. According to Marketwatch, the historical average is 3.3 percent. That puts us down almost 40 percent from the average over the last five years. However, we may be poised to finally climb out of this fog. The following quote perfectly summarizes the current opinion of many economists:
Our economy won't be held down forever. With a solid economic foundation in place and boatloads of cash waiting to be put to work, that day is getting closer.
Here's the problem - I wrote that quote more than a year ago. We've been waiting and waiting for the promised economic leap... and it hasn't happened. Instead we saw huge stock market gains - in anticipation of the promised economic pick-up. If that uptick doesn't happen, the markets won't be pleased. Luckily, the day of reckoning has been postponed because bad winter weather is hiding the real economy. But the true nature of the economy will show its face in the coming months. Of course, I have a fearless prediction as to what's going to happen. But you'll have to keep reading.
So far, the economic numbers look promising. Maybe it really was the weather? The last few weeks have given us several strong employment reports, as well as strong retail sales, consumer confidence, manufacturing and durable goods (big-ticket items). Unfortunately, the one exception is real estate. That's a little surprising, as real estate has been a key driver for our economy over the past couple of years. But it really shouldn't be a shock. Home prices have risen significantly; and like stock prices, that can't continue without a significant upswing in the general economy. If you combine that with rising mortgage rates, real estate is battling some headwinds.
The most painful economic report of the month was GDP, which showed growth of only 0.1 percent over the first three months of the year. That's the worst growth in 3 years. Surprisingly, there were bits of positive news in the GDP report. For example, consumer spending rose a whopping 3 percent. Unfortunately, according to Marketwatch, most of that increase was from people heating their homes and spending more on health care. Those aren't very productive things for consumers to be spending money on. That 3 percent gain doesn't seem so cool anymore... But don't be sad. In a few weeks, the GDP report will be revised. Then it'll get re-revised a few weeks after that. In the end - it may show an entirely different picture... See? Economics isn't frustrating at all.
So what is the true nature of the economy? Are we finally looking at the beginning of a legitimate economic upswing? As much as I'd like to believe it, I'm not convinced. This feels like the same old economy. If that's true, we won't be looking at great stock market returns like we've seen in recent years. But it's also hard to imagine any significant market drops. Slow and steady may be as good as we can get in the near future.
Brad Blackburn, CFP®, is the owner of Blackburn Financial, Registered Investment Advisor. Blackburn Financial is located at 121 Cottage Ave, Cashmere. He can be reached at 509-782-2600 or email him at firstname.lastname@example.org