We’re in the middle of an interesting moment for the markets, where short-term volatility and uncertainty might lead you to believe that the economy is faltering. After all, the major stock indexes lost ground this week, with the S&P 500 losing 1.94%, the Dow dropping 1.50%, the NASDAQ dipping 2.77%, and the MSCI EAFE declining 1.59%.1 On top of these losses, the S&P 500 posted its longest losing streak since 1980.2
However, we have a great start to the new week with all the leading averages up strongly after the FBI dropped the charges on Clinton. The market expects a Clinton win as the poll numbers have been correlated to the markets. As the race became ‘tighter’, the market sold off.
Of course, we never like to see the markets go down like last week. However, we believe that when you look beneath the surface, the economy is still doing far better than what this week’s performance implies. Behind the losses and ongoing election exhaustion, we see a number of strong indicators that the economy is growing. This week, we learned that the trade deficit shrank3, the service sector grew for the 81st consecutive month4, and manufacturing continued its steady growth.5
On Friday, November 4, we also got to see new data on jobs and payrolls — the last significant economic report before Election Day.
What did the jobs report show us?
- Unemployment Rate Dropped
The unemployment rate hit 4.9%—only 0.1% above the Federal Reserve’s target unemployment rate.6
- Economy Added 161,000 Jobs
While this job creation rate was below economists’ predictions7, we don’t think it is cause for concern. The growth was matched by revised August and September reports that added another 44,000 jobs.8
- Hourly Earnings Increased
Earnings increased by 0.4%, pushing them 2.8% higher than this time last year. We haven’t seen an earnings increase this large since 2009.9
- People Left Their Jobs at Higher Rates
Last month showed the highest number of people who voluntarily left their jobs since 2007. This statistic matters because it can show that people are more confident they’ll be able to find new jobs.10
For years, this plow horse economy has been adding new jobs at a slow and steady pace. Now that we’ve almost reached the benchmark unemployment rate, people are finally starting to see their wages increase and new opportunities arise. Typically, better jobs mean more disposable income, which equals increased consumer spending—and economic growth.
The rest of 2016 might not be a smooth ride, as the election and potential interest rate increase remain on investors’ minds. We hope you find comfort knowing that beneath this short-term volatility, we see growing economic strength.
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