The economy is improving

Although it may not look like it through the recent decline in the market, and the seemingly slower growth jobs report, the economy is actually improving.

First, consumer borrowing just spiked way up.…

U.S. consumers sharply increased use of their credit cards in March, pushing up total borrowing at the fastest pace in more than a decade.

The Federal Reserve reported Friday that total consumer borrowing rose $29.7 billion in March, a 10 percent jump from the previous month. It was the largest percentage gain since a surge of 18.4 percent in November 2001, when consumer borrowing surged in response to government officials urging Americans to boost spending to support the economy following the September terrorist attacks.

Second, those jobs growth figures look things are slowing down? Not so fast there. The quality jobs that drive our economy are actually going up:…

While the pace of growth slows down as recoveries mature, the quality of those jobs improves. The first jobs to come back following a recession are in places like stores, restaurants and hotels, said Raymond James chief economist Scott Brown. This activity boosts job numbers and lowers unemployment but does little for wage growth, since most of these jobs tend to be lower-paying. As recoveries mature, the pace of growth slows down but the quality of those jobs improves.

Some stats from the article:

o Biggest gains in April were professional services and healthcare, which added 65,000 and 44,000 jobs, respectively

o Gains in professional services jobs included 21,000 jobs added in management and technical consulting services, and 7,000 in computer systems design and related services

o This rebound, combined with the dynamic of higher demand and fewer workers across the board, is leading to rising wages

o Annualized rate of wage growth rose to 2.5 percent. By comparison, wage growth was at 2 percent 18 months ago

When you look at these two pieces of information as a composite (1. consumer borrowing is going up and 2. quality jobs with better wages are going up) you can see that the economic condition is actually heading exactly where we want to go.

Those better paying jobs just got a boost last month, and to celebrate their new jobs and wages all those folks bought some nice things in March - the biggest boost in credit card purchases since 2001.

All these things mean a good thing for our growth stocks. But since these activities just started in March we’ll have to wait until next quarter to see them in our earnings reports.



Thanks Kevin, I hope you are right.

My largest portfolio position is down over 16% in the last 30 days.

Yesterday I increased that position by 18%. I hope I am right.


Just to clarify, the stock I am talking about, has had nothing but postives over that 30 day period, no bad news. Thats why I added more.

Thanks for posting this - it is encouraging to see the economy humming along. I continue to lament the outsize role the Federal Reserve plays in the narrative of the stock market these days.

No less an authority than Peter Lynch is often quoted as saying: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.” It is hard enough to find great companies, and then exhibit buying discipline on the price you pay. Trying to add accurate economic forecasting and predicting a recession is too much for any investor!


Adding to this, a possible shot in the arm next week that may be worth looking at.…

NEW YORK (Reuters) - The U.S. stock market could get a shot in the arm next week as consumer-facing companies report earnings in a season in which the sector has so far been the overachiever.

First-quarter earnings are winding down and the consumer discretionary components of the S&P 500 are the only sector showing double-digit earnings growth from a year ago. Earnings for the S&P as a whole are expected to have fallen 5.1 percent in the first quarter.

Following year-end holidays, the first quarter is not typically a good one for consumer spending. This year especially, given it started with a stock selloff, analysts did not expect consumers to be out spending.

“The whole sector had low expectations coming into earnings and for good reasons,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

“The stock market was stinking up the place and analysts assumed consumers were too,” Forrest said, adding that strong earnings “will remind the market that two-thirds of the U.S. economy is the consumer.

About 30 percent of the sector’s components on the S&P 500 have not reported earnings while 87 percent of the index’s numbers are already in.

The largest retailers due to post earnings next week are Macy’s, Nordstrom JWN.N> and Kohls.

Macy’s shares, up almost 8 percent in 2016, could either double that gain or completely erase it by next Friday according to options market activity, which points to an 8 percent move in either direction.

The current 23.1 percent expectation for earnings growth in the discretionary sector compares with bets on a 13.3 percent gain just over a month ago. The numbers blend reported numbers and up-to-date estimates and are compiled by Thomson Reuters I/B/E/S.

If the estimate holds, it will be the largest quarterly earnings percentage growth for the sector since the third quarter of 2010.

Coming off of a 12.8 percent increase in year-on-year earnings in the last quarter of 2015, the sector is also expected to post double-digit growth every quarter through the first three months of 2017.

Even with those outsized expectations, the estimates have not translated into massive investor interest. The discretionary sector index is up 1.2 percent year to date, compared with a 0.6 percent increase for the S&P 500.

“Discretionary could send a signal to the market with good second-quarter guidance,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. “Strong numbers would mean the economy will avoid recession, and could send (the S&P 500) to new highs.

Jacobsen recommends his clients be overweight in the discretionary sector, but noted there is a high degree of skepticism among investors that the sector can maintain solid growth.

On top of the earnings, retail sales data is due on May 13. It will be scrutinized for clues on the health of the consumer after an unexpected 0.4 percent fall in March, weighed by auto sales. Forecasts call for a 0.7 percent expansion in April.

Given the 10% jump in consumer credit in March, it may very well be we’ll see some of that follow through in the consumer discretionary stocks next week.

It may be a good idea to get a list of your consumer discretionary low 1YPEGs together to see which companies haven’t reported yet.

DIS is one that I have on my radar. While revenue growth isn’t exactly stellar at 9% YoY, it’s EPS growth is 21% and the 1YPEG is .91. There were a few good Disney movie hits last quarter, plus all the star wars products and licensing follow through from Hasbro (who also reported a stellar quarter). Just an idea for your consideration. Please always do your own research.

Long DIS



Hiring is a result of and not a leading indicator of economic growth.…

The Marketminder website has a lot of useful information on how we misinterpret data or make ourselves believe things that aren’t true or at least cause us to make bad decisions.



It was the largest percentage gain since a surge of 18.4 percent in November 2001


All these things mean a good thing for our growth stocks. But since these activities just started in March we’ll have to wait until next quarter to see them in our earnings reports.

After the tech bubble, the market bottomed at the end of September 2002, 10 months after the November 2001 surge in borrowing. I remember this well because ARMH had a 60% one day drop in price (after it had already fallen 90% from its 2000 top) that was so ridiculous that I doubled up my position.

My point is that the effect of the borrowing will take longer than a quarter to filter down to stock prices, closer to two or three quarters.

Denny Schlesinger