If you get all your information about the U.S. economy from mainstream media sources, you can be forgiven for thinking the U.S. economy is doing well. After all, the major stock indices continue to perform admirably; the S&P 500 is up more than 15% year-over-year and 175% over the last five years.
Most recently, some economists point to improved U.S retail sales and increasing auto sales as a sign the U.S. economy is on the mend. On one hand, this is good news for an economy that gets 70% of its GDP growth from consumer spending. But, as Lombardi Financial reports, spending is different than being able to afford something.
For example, in April 2014, the average credit card debt was $15,191; the average mortgage debt was $154,365; while the average student loan debt was $33,607. Overall, Americans are $11.68 trillion in debt, a 3.7% increase from the same period last year. (Source: newyorkfed.org, "Household Credit," April 2014; ww.newyorkfed.org/regional/householdcredit.html)
Lombardi Financial says that despite assurances from analysts, economists, and politicians that the U.S. economy was only underperforming because of the brutal winter weather, the fact of the matter is, the U.S. economy isn't fairing so well. That is, if earnings and revenue are an indicator to the health of the U.S. economy.
Case in point, in the fourth quarter of 2013, roughly 30% of S&P 500 companies reported an outright decline or no change in their revenue from the previous year. And in the first quarter of 2014, 84% (93 out of 111) of reporting companies have issued negative EPS guidance; the second highest level since 2006. The current record is 85% which was recorded in the fourth quarter of 2013. (Source: factset.com, press release, "Near record high number and percentage of S&P 500 companies issuing negative EPS guidance for Q1," March 31, 2014; factset.com/insight/2014/3/guidance_3.31.14)
According to Lombardi Financial, the U.S. economy cannot expect to report sustainable growth if the underlying fundamentals are weak. And the U.S. economy is not set to rebound until stubbornly high unemployment levels come down and wages increase.
In March, the U.S. unemployment rate remained virtually unchanged at 6.7%. It remains much higher in the country's most populated cities: unemployment in New York is at 7.7%, L.A 8.1%, and Chicago 9.0%. More importantly, the underemployment rate, as measured by Gallup, remains excessively high at 16.9%. (Source: gallup.com, press release, "U.S. Payroll to Population Rate 42.7% in March," April 3, 2014; gallup.com/poll/168218/payroll-populatio...)
Lombardi Financial contends not much has changed. Since November, the U.S. economy has created a less than 200,000 jobs each month and the unemployment rate has, for the most part, hovered around 6.7%. These unemployment figures should not be taken lightly; and should cause investors concern.
What does this data suggest? While the U.S. economy has been growing, at less than 2% annually, it needs to grow 3-4%. Meaning, the world's largest economy continues to under perform.
The experts at Lombardi Financial understand that for the U.S. economy to rebound it needs a sustainable influx of steady jobs and earnings growth. Instead, the U.S. economy is facing high unemployment and stagnant wages.
Lombardi Financial suggests that whenever bullish stocks are supported by high unemployment, weak economic indicators, and barely there growth, it's a good time to avoid risk and preserve capital.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation visit lombardipublishing.com/customer-service.html