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July 1 2014

Last week, the U.S. Department of Commerce delivered news that was about as welcome as a report of a great white shark sighting off a popular beach during the Fourth of July holiday. The Commerce Department’s third revision of its estimate for economic growth in the United States during the first quarter of 2014 was revised downward – by a lot. Instead of contracting by 1 percent, the economy shrank by 2.9 percent. It was the worst single-quarter contraction in five years.

According to Barron’s, “The number was so bad… it suggested that something more than the weather was to blame for the plunge in economic activity – and that a recession could be in the offing.” Other factors did contribute to the economy’s first-quarter reversal including a reduction in healthcare spending sparked by the Affordable Care Act and the end of emergency unemployment benefits in January.

However, experts warned against making too much of backward-looking data. ING economist James Knightley told The Guardianreaction to the news should be fairly muted as many economists expect second quarter numbers to show significant improvement. PNC Financial Services senior economist Gus Faucher, who was also quoted in the article, concurred:

“The contraction in the first quarter is old news, and things are looking much better for the rest of this year. Most importantly the labour market remains solid… Job gains are allowing households to increase their spending, with higher stock prices and home values also helping. Recent data have been solid, with big jumps in new and existing home sales in May, and consumer confidence recovering after it took a hit in the winter. An expanding global economy will help boost exports…”

Comments from St. Louis Federal Reserve President James Bullard reinforced the view that economic growth remains steady. Last Thursday, he predicted the Fed would raise interest rates early in 2015.Bloomberg.com reported Bullard expects the jobless rate to drop below 6 percent and inflation to close in on 2 percent by the end of 2014.

  • Data as of 6/27/141- WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)0.1%6.1%21.6%0.15316.2%5.6%
  • 10-year Treasury Note (Yield Only)2.5N/A2.52.93.54.7
  • Gold (per ounce)  0.4 9.76.9-4.27.112.6
  • DJ-UBS Commodity Index-0.58.18.4-4.21.7-0.6
  • DJ Equity All REIT TR Index0.216.412.512.723.69.6

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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