OmniDivitia Wealth Management, Inc. - ODWM Blog #bureau of economic analysisOmniDivitia Wealth Management, Inc. - ODWM Blog #bureau of economic analysishttps://www.omnidivitia.com/blogs/tag/bureau-of-economic-analysisSun, 12 Apr 2026 16:12:42 -0700http://zoho.com/sites/<![CDATA[Recession or Soft Landing?]]>https://www.omnidivitia.com/blogs/post/recession-or-soft-landingConsumer spending and low unemployment have helped counter actions by the Federal Reserve.]]>

Jackson Hole could provide some insight.

Last year during his speech at Jackson Hole, WY, Federal Reserve Chairman Jerome Powell stated the following:  


"Restoring price stability will take some time and requires using our tools forcefully to bring supply and demand into better balance.  Reducing inflation is likely to require a sustained period of below-trend growth.  Moreover, there will likely be some softening of labor market conditions.  While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will likely also bring some pain to households and businesses.  These are the unfortunate costs of reducing inflation.  But a failure to restore price stability would mean far greater pain."


What is unclear is not if the Fed feels accomplished; it's likely they do not.  Rather, the question may be how much further do they need to go?  Despite inflation's decline over the last year, it has done so without slower growth or significantly softer labor conditions.


Growth Continues to be Strong

This chart reflects GDPNow, an estimate of the Gross Domestic Product for the United States, managed by the Federal Reserve Bank of Atlanta.  The GDP estimate had slowed to be just above an annualized rate of 1.13% in 1Q23, but the estimate for 3Q23 is now roughly 5.75%, even with the reduction of the money supply (M2) and all of the interest rate increases that have occurred.

The Labor Market is Still Tight

The unemployment rate has been pretty stable over the past year, according to the Bureau of Labor Statistics.  In fact, despite the four-week average of initial jobless claims moving slightly higher this year, the unemployment rate sits lower than a year ago, at 3.50%, much lower than the theoretical rate of "full employment".  Continued claims for unemployment insurance are also lower than before the COVID-19 pandemic began (1,879,000 for the week ending 1/4/2020; 1,716,000 for the week ending 8/5/2023).


Why is this important?  A tighter labor market leads to higher wages, which likely also leads to more consumer spending.  It seems as if the full impact of the interest rate increases over the last 18 months still has to be felt.  We may be toward the end of the Federal Reserve's rate-hiking cycle, but I would not be surprised if the Fed keeps rates higher for longer than what some believe.

Watch Household Credit & Consumer Spending

Consumer spending & household debt could be one measure signaling if the US could have a soft landing or a recession.  The housing market has already slowed over the past 12-18 months, as interest rates have risen and sellers (with mortgages at historically lower rates) are hesitant to upgrade with mortgage rates around multi-decade highs. Affordability is also much lower due to limited housing supply.  In addition, according to the most recent quarterly Household & Credit Report by the New York Federal Reserve Bank, two concerning points  were raised.




  • "Credit card balances saw brisk growth, rising by $45 billion to a new series high of $1.03 trillion."
  • "Credit card balances saw the most pronounced worsening in performance in 2023Q2 after a period of extraordinarily low delinquency rates during the pandemic."

Higher delinquency rates could lead to tighter lending conditions and increased reserve requirements for lenders.  This could accelerate a slowdown in demand, as well as impact lender earnings, which could then result in lower stock prices for financial services companies.  Another point to remember:  the student loan payment moratorium ends August 31, 2023. (What do you think will happen when payments start up again in October?)

Conclusion

Continue to watch reports on household credit & consumer spending closely as we enter 4Q23, especially during the holiday spending season.  In my opinion, if consumers initiate a slowdown in spending (because they feel less confident in the economy), we may have a more moderate slowdown, i.e., a soft landing. Households would likely pay down debt &/or improve their respective balance sheets.  However, if lenders proactively created a somewhat tougher lending environment in order to manage risk & mitigate the increase in delinquency rates, it might induce increased market volatility and lead to a recession.  While painful in the short term, it could also create better long-term opportunities because of the more reasonable valuations.


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]]>Wed, 23 Aug 2023 11:27:41 -0500<![CDATA[After the Anniversary]]>https://www.omnidivitia.com/blogs/post/After-the-Anniversary

We recently passed the five-year anniversary of the market's trough due to the financial crisis. On March 9, 2009, the Dow Jones closed at 6507.04; the S&P 500 closed at 676.53; and the Nasdaq closed at 1268.64. On March 10, 2014, the Dow closed at 16,418.68; the S&P 500 closed at 1877.17; and the Nasdaq closed at 4334.45. These respective gains are all quite impressive over that time frame. However, if we go back to the 2007 peaks of the each benchmark (around October 9-10), we get a very different picture. The annualized returns (through March 10, 2014) since then are 2.30%, 2.84%, and 6.76% respectively.


Based on some recent conversations I've had, I thought it may help to expound on why I am (along with many others) cautiously optimistic about the US stock markets.


Labor Markets


As of their February 2014 report, the Bureau of Labor Statistics (BLS) shows a year-over-year decline in the unemployment rate from 7.7% to 6.7%, which reflects about 1.6 million people back in the workforce. The headline numbers have clearly improved, though at a sluggish pace.  There are concerns, however, when you delve into the report for details.

  • 10.5 million Americans counted as unemployed;
  • 7.2 million people employed part-time for economic reasons ("involuntary part-time workers");
  • 2.3 million people "marginally attached to the labor force", meaning that they were not counted as unemployed because they had not searched for work over the four weeks prior to the survey for this report.  Roughly 1/3 of this group is considered "discouraged" as they are neither looking for work nor do they believe jobs exist for them.
  • If we include the unemployed, underemployed, and those not being counted, we would be discussing 12.8% of the labor force, not 6.7%.  As this employment picture slowly improves, it could mean that there is a possible modest tailwind for the economy until these figures become historically normalized.
Consumption - Is the trend my friend?

Average hourly earnings have improved 1.9% over the previous year according to the BLS, which is good news for those who are working.  Consumers have also spent more, as measured by the Bureau of Economic Analysis (BEA), especially on durable goods.  Corporations have certainly benefited from these trends, especially as banks have begun to loosen their requirements (slightly).  However, durable goods, by definition, do not require replacement as often, and the trend also shows that the cyclical peaks have not been as high as their predecessors recently.  In short, the recovery has allowed those who were financially secure to spend more of their discretionary income.  As additional jobs are created, more people will have increased confidence in their financial position, and we'll see consumption and sentiment improve.  without additional wage-earners and higher wages, I don't believe the pace of consumption will have enough steam to accelerate the recovery.

Corporations Sitting on Cash

During this recovery, corporations have used cash for share buybacks, enhancing dividends, or for mergers & acquisitions rather than hiring people back at a faster rate.  The reasons for this range from the lack of visibility regarding corporate taxes to sluggish consumer demand.  In 2013 alone, revenue growth for the member companies of the S&P 500 was approximately 2.24%, but operating earnings are estimated to have grown more than 9% (mostly due to the effect of cost cutting over the last few years).  We're all waiting for top line growth, but this is truly a "chicken and egg" scenario.  Companies won't hire until there is greater consumer demand; consumers demand won't increase until wages begin to increase.  Wages won't increase until companies hire and the labor market tightens.


Janet Yellen & the Federal Reserve


The pace of the Fed's economic support reduction ("tapering") is critical moving forward.  In my opinion, while the unemployment rate is approaching their stated target, the degree of slack in the labor markets and lack of any inflationary concerns indicate that tapering will occur at a measured pace pending signs of economic acceleration.  Their actions will most likely become more swayed by qualitative information than quantitative.   As I write this, the Fed is scheduled to conclude their meeting this afternoon, and make an announcement afterwards.  More to come on this at a later date.


In Conclusion...


We've been in this environment for some time, and while it may not be exciting, the economy is improving, and stock markets have had a remarkable recovery.  Change, however, is the only constant.  Revisit your portfolio to evaluate the types of risks to which you may be most exposed.  Determine a course of action for when the environment shifts, but enjoy the ride in the meantime.

Contact us today to learn more about how Locker Wealth Management can help you save, invest, manage, and transfer your wealth in a time-friendly and tax-friendly way.

Disclosures:   The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.  TheStandard & Poor’s 500 Index is a capitalization weighted index of 500stocks designed to measure performance of the broad domestic economy throughchanges in the aggregate market value of 500 stocks representing all majorindustries.  The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this article may not develop as predicted.


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