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Think the US Recovery Is Too Slow? Take a Look Around

12 May 2013 in Trading Ideas

For those of you who foresaw that a new Japanese prime minister and his money-easing ways would contribute to a jump of more nearly one-third in the country’s stock market, congratulations.

For the rest of us, the equity-investing strategy continues to require that we include, as part of our investing calculation, which global economies are growing and/or slowing – and how that will impact stocks in those respective countries.

And, for all the holes one could poke in the US recovery profile, is it possible that it’s one of the better things going out there?

Some recent data suggest, at the very least, that the economy here continues to plug along at a consistent, if uninspiring pace. Last Friday’s jobs report showed 165,000 new jobs were created in April, and the unemployment rate fell to 7.5%.1 On the downside, the decline in the unemployment rate was partly a function of those leaving the active job-seeking corps, and a fall in average hours worked per week was similarly disturbing.

As for housing, prices continue to stabilize, if not improve. The Case-Shiller 20-City Index rose 1.2% in February, and prices are now 9.3% higher than they were a year earlier. Great news, right? Yes, potentially, but as economist Dean Baker explains, this rapid run-up in prices could once again put moderate-income homebuyers at risk of a big financial hit if prices begin to correct.2

Amid that tempered enthusiasm, consider the alternatives. Europe, for example, just witnessed its 15th straight month of shrinking services and manufacturing output, while retail sales fell in March – after doing the same in February.

The euro economy has now contracted for five consecutive quarters, and well, no hope is on the way. Last week, the European Commission revised its expectations of 2013 gross domestic product lower to a decline of 0.4%. That follows a contraction of 0.6% in 2012, the first back-to-back falls in output since the euro debuted in 1999.3

What about China, you ask? Growth is still relatively high, but its economy slowed unexpectedly to 7.7% in this year’s first quarter, raising fears that a recovery that began in last year’s second half is already losing steam.4 Chinese stocks, as a whole, have been flat in 2013.

All American MotifOne investing alternative amid these data points is the All-American motif, which focuses on domestic companies that generate 100% of their revenue from US customers. The motif has risen 23.8% this year, and has increased 19.3% in the past 12 months.

1“Big revisions help brighten monthly US jobs report,” Associated Press, May 6, 2013, http://www.newtondailynews.com/2013/05/06/big-revisions-help-brighten-monthly-us-jobs-report/ad0cws1/ .
2Dean Baker, “Price Increases Accelerate Further in February, Driven By Bottom Tier of Market,” April 30, 2013, cepr.net, http://www.cepr.net/index.php/data-bytes/housing-market-monitor/hmm-2013-04, (accessed May 7, 2013).
3Scott Hamilton, “Europe Gauge Shows Contraction as Retail Sales Decline,” Bloomberg.com, May 6, 2013, http://www.bloomberg.com/news/2013-05-06/euro-area-services-manufacturing-shrink-less-than-estimated.html, (accessed May 9, 2013).
4Richard Silk and Tom Orlik, “China GDP Growth Slows to 7.7%,” WSJ.com, April 14, 2013.