ECONOMIC COMMENTARY (06/06/2018)
Every month we share our personal commentary on economic forces challenging your money. It's not "gospel" but it's what we think. Have thoughts? Please share in the comments below.
- Trade “Disputes.” As I write this, a press conference by the Director of the National Economic Council is ringing in my ears. Senior Economic Advisor Larry Kudlow, was building a case for the economic policy that uses tariffs as a tool to protect the United States’ economic interests. In a world where tariffs and non-tariff trade barriers have been going down, initiating trade “disputes” seems an unlikely way to keep world economies growing. Kudlow makes the case that the best way to protect national interests is to not use “carrots” like concessions but to use “sticks” to encourage (force?) allies to lower their trade barriers with the United States. It’s a bold method; Kudlow admits as much by calling his boss the “strongest trade reformer in the past 20 years.” Will this encourage the strong economy or discourage it? Well, typically the stock market is an early predictor of the future state of the economy. So far the Dow Jones Industrial Average (DOW) is up 1.24% this year. The S&P 500 is up 3.30% and the NASDAQ is up 10.94% (as of mid-day, June 6, 2018)
- G7. The reason that trade is such a big deal in the news right now is because the “wealthiest nations” are meeting in Canada over the next few days. Canada will host leaders from the United States, Italy, France, Germany, the UK and Japan in the midst of what many consider an “awkward” time for US relations with its allies. For context, the World Trade Organization (WTO) began with the signatures from 124 nations in Marrakesh, Morocco on April 15,1994. The Marrakesh Agreement replaced the 1948 General Agreement on Tariffs and Trade (GATT). This new agreement provided a framework for disputes and negotiating trade agreements. Our allies are now using the WTO to dispute our new tariffs. This is why it’s a little awkward to meet with them right now. But I guess it’s better to meet with upset allies than to ignore them.
- More Jobs, Jobs, Jobs. Last month’s unemployment rate was the lowest since the year 2000 at 3.9%. This month it’s even lower at 3.8% and to get a time in history when it was lower than that, you’d have to go back nearly 50 years. What’s going on? The combined stimulus of below average interest rates coupled with the drastically reduced corporate tax rates is having a positive effect on corporate profit margins. Whether this is a beginning of a new economic cycle or the end of a (positive) 9 year cycle is hard to say. The Federal Reserve Bank is expected to continue raising interest rates this year. This is a monetary policy tool usually used to dampen the economy out of fear of inflation. How many times will help to determine how fearful the Fed is of inflation and that will signal to analysts how the Fed feels about the economy.
We will keep monitoring all economic indicators and investing our clients with their timeline in mind regardless of the news, the noise and the rosy numbers.