June 1, 2012
Ouch! This morning payroll report was truly painful, but it doesn't change my opinion of the No. 1 best area to invest in the current market environment. So in today's post I'll explain to you exactly why as investors we should run—not walk—to invest in companies tied to the U.S. economy.
The 69,000 jobs created in May was a big disappointment—economists forecast over twice that amount. Not only was it the worst jobs report in a year, but the previous two months were also revised down sharply. This was devastating for Presidential Obama, and Presidential candidate Mitt Romney wasted no time in seizing the moment to bring the conversation about the fact the current policies are failing to promote job growth.
So what this means is that it's looking increasingly likely that Mitt Romney could be our next president. And while I don't get too political, the fact is that Wall Street is looking forward to a pro-business president in the White House and the election season is going to breathe new life into the stock market, which is always looking forward.
In addition, there are some significant bright spots in the U.S. economy that reaffirm that this country truly is the oasis amid the global economic slowdown. For example, as mediocre as an 8.2% unemployment rate sounds, try living in the Eurozone, where unemployment just hit a 17-year high at 11%. And job seekers in Spain and Greece have to contend with over 20% unemployment.
Also, while the U.S. ISM manufacturing index held close to the consensus estimate in April and orders rose to a 13-month high, things weren't as sunny around the world. In China, the purchasing manager's index fell dangerously close to the benchmark that separates growth from contraction. And the Eurozone manufacturing sector has just posted its worst month since June 2009!
And when it comes to the single-most important driver of the U.S. economy, this country is making significant gains. But before I dig into this, I want to start off with a refresher in Economics 101. Which of the following do you think has the largest impact on the U.S. economy?
A) Government spending
B) Private investment
C) Consumer spending
If you answered C) Consumer spending, you are absolutely correct. In fact, economists estimate that consumer spending accounts for more than two-thirds of economic growth! So the power of the American consumer is doing a lot to advance the economy.
We received some telling data this week about the state of the American consumer. First, even though the Conference Board's index of consumer confidence dipped below expectations, last week the University of Michigan/Reuter's preliminary survey of consumer sentiment rose to 77.8 in May up from 76.4 in April. This is the highest reading in nearly four years!
And, the mixed consumer confidence didn't appear to have much on an impact on consumer spending, which climbed 0.3%—higher than the 0.2% consensus. Additionally, 18 major retailers released their May same-store sales figures—the average retailer posted a 3.6% gain.
Finally, in recent weeks, we've had a surprising comeback from one of the most troubled pockets of the economy: the housing sector:
While the rest of the media is crying wolf and proclaiming the downfall of the U.S. economy, I want you to keep these bullet points in mind: Even though monthly economic reports can be volatile at times, longer-term economic trends support the fact that the U.S. is in fact the strongest link in the global economy.
So trust the U.S., load up on consumer-driven companies, and make sure that you're taking the current opportunity to add premium stocks with hefty dividend yields.