“Just give up being so negative; there’s economic growth in the U.S. economy.”
These were the exact words of my good old friend, Mr. Speculator. Over the weekend, when I received a call from him, he added, “You see the average American is better off than before. There are jobs; and no matter where you look, you won’t find much negativity. Look at the stock markets; they probably will show a 30% increase for 2013.”
Sadly, Mr. Speculator has become a victim of the false assumptions that seem to prevail in the markets these days. He’s basing his conclusion on just a few indicators that he looked at from just the surface, not looking much into the details. For example, the stock market doesn’t really portray the real image of the U.S. economy, but it’s used as one of the indicators.
Here’s what is really happening in the U.S. economy that keeps me skeptical.
First of all, jobs growth in the U.S. economy has been center stage for some time. I agree that the unemployment rate has gone down, but I ask where the jobs were created. In November, for example, we saw the unemployment rate in the U.S. economy reach seven percent, and it sent a wave of optimism across the mainstream. Sadly, a major portion of the jobs created for that month were in the low-wage-paying industries. Mind you; this has been the trend for some time now. (Source: “Employment Situation Summary,” Bureau of Labor Statistics web site, December 6, 2013.) In periods of real economic growth, you want equal jobs creation, which we are clearly missing in the U.S. economy.
Secondly, Americans really aren’t better off than they were before—incomes are declining. Consider this: between 2007 and 2012, the real median household income in the U.S. economy has fallen by more than eight percent. In 2007, the median household income registered at $55,627. In 2012, it declined to $51,017. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 13, 2013.) In times of real economic growth, you want to see increasing incomes.
Thirdly, more and more individuals in the U.S. economy are seeking the help of food stamps. In September, there were more than 47.3 million Americans on food stamps. This number has grown significantly over the past few years. (Source: United States Department of Agriculture, “Supplemental Nutrition Assistance Program,” United States Department of Agriculture, Food and Nutrition Service web site, December 6, 2013.)
Last but not least, over the past few years, consumer confidence in the U.S. economy has increased, but it is nowhere close to where it was before the financial crisis. Take a look at the chart below of the University of Michigan Consumer Sentiment index, which is an indicator of consumer confidence in the U.S. economy.
Chart courtesy of www.StockCharts.com
To me, what I have mentioned aren’t indicators of economic growth in the U.S. economy, and this is what keeps me skeptical. On the surface, the indicators are creating a sort of mirage that suggests a false truth—the reality of which is very unpleasant.
For investors, this means the key stock indices, whose performance relies on the overall state of the economy, are running beyond reality. They may face turbulence ahead if the economic factors remain bleak. Investors seeking to profit from the decline in key stock indices may want to look at exchange-traded funds (ETFs), like the ProShares Short Dow30 (NYSEArca/DOG).