We’ve seen record earnings growth and record stock market levels for the last few years, but that doesn’t mean we’ve seen corporate growth. Much of the advances in earnings over the current recovery have been marked by slashing payroll, increased productivity, and other cost containment measures.
To truly see corporate growth we need to see capital investment. When corporations invest in labor and equipment they are creating an expense for future sales and healthy growth of their company; something that has yet to take place in this expansion. Reports over the last week lead me to believe that the desire for capital investment by corporations may return sooner rather than later.
Corporate Growth Recipe
1 Cup of Productivity: During cost cutting initiatives we see productivity go through the roof as companies are trying to do more with less. 2013 productivity came in at a meager 0.5% increase.[2]
1 ½ Cups of Wages: Wage increases are minor during recessions or early stage recoveries, however last week’s wage data showed a 2.5% increases year over year for production and non-supervisory rolls.[3] This out paces current inflation by .9%.
½ Cup of Employment: The unemployment rate went up in February from 6.6% to 6.7%, not because fewer jobs were created, but rather because 264,000 people entered (or re-entered) the workforce. Showing a renewed confidence in the job market.[4]
1 Tspn of Construction: Of the 129,000 jobs added in January, 50,000 of them were construction jobs[5]; which show signs of anticipated demand this summer and continued strength in the new home market where concerns exist due increased prices and mortgage rates.
Throw it in the oven at 400⁰ and who knows what the heck you’d get, but my money is on a robust 2nd half of 2014.
Internationally, the Ukrainian standoff sent markets into a tail spin on Monday just to recover and allow the S&P 500 to record new highs as tensions eased throughout the rest of the week. The Eurozone’s Composite PMI increased from 52.9 to 53.3 (above 50 indicates expansionary). In all, the health of the European recovery is improving. So much so that the European Central Bank (ECB) held off on any stimulus action at its most recent meeting. This indicates that they feel the current economic conditions are strong enough to continue to accommodate growth and maintain low to moderate inflation (currently very low).
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment. Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.