Tags: economy | bear market | stocks | recession

Caution: Economic Data Flashing Yellow

By    |   Wednesday, 06 May 2015 06:00 AM

Federal Reserve members might be surprised that economic weakness could extend beyond the first quarter and be caused by more than bad weather.

Demand in the manufacturing sector is drying up and that is a cause for concern.

Many headlines are focused on unexpected strength in the services sector. This is a positive for the economy but it’s not as important as it sounds.

Services, like financing home purchases and buying auto insurance, all require tangible things. Often, services are paid for with money earned by producing things.

Even though we live in a connected world, manufacturing, construction and agriculture remain central to economic growth. The products of these three sectors are tangible and without tangible goods, there is nothing to connect.

This makes services a lagging economic indicator. Growth in services indicates consumers had income to spend because things were produced in the past.

Therefore, growth in manufacturing is a leading indicator of the economy and shows us whether or not there will be income to spend on services in the future.

Right now, new orders for factory goods and other economic data point to a slowdown in the economic sectors that are responsible for production.

This is a warning sign for the economy and the stock market.

If second-quarter GDP shows little recovery from the dismal first quarter, we could be nearing a recession.

Before a recession, we should expect to see a bear market in stocks.

Now is the time to plan for a bear market to avoid making irrational decisions when the market behaves irrationally on the downside.

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MichaelCarr
Federal Reserve members might be surprised that economic weakness could extend beyond the first quarter and be caused by more than bad weather. Demand in the manufacturing sector is drying up and that is a cause for concern.
economy, bear market, stocks, recession
263
2015-00-06
Wednesday, 06 May 2015 06:00 AM
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