Market News – October 8, 2018

LOWEST UNEMPLOYMENT RATE SINCE DECEMBER 1969:  137,000 new jobs were added to the U.S. economy in September, the 96th straight month of gains.  137,000 is not a particularly large number, and it may have been affected by Hurricane Florence.  However, the Bureau of Labor Statistics updated the July and August numbers upward by fairly significant numbers.  The result was an unemployment rate that dropped to 3.7%.  In addition, average hourly earnings increased to $27.24, a 2.8% rise from a year ago.  The Labor Force Participation Rate remained unchanged, continuing a current pattern.

COUNTERINTUITIVE STOCK SELL OFF: Economic data continues to be strong.  In general, geopolitical concerns have eased.  So how does that cause stocks to decrease in value?  Essentially, investors saw this strength as potentially being too strong.  If the economy moves too fast, interest rates will likely continue to rise, and inflation may be a problem.  So far, inflation concerns have not materialized.  However, yields on U.S. government bonds rose last week to their highest rate (3.23%) since May 2011.  This rate serves as a benchmark for mortgages, small business loans and state and local government bonds.  Higher borrowing costs can slow the economy.  The real concern is not that these rates rise, they surely will, but that they will begin to rise too fast.

THIS SHOULD NOT HAPPEN DURING A STRONG ECONOMY:  Government spending rose 3% in fiscal year 2018, pushing the budget deficit to $782 billion, up from $666 billion the previous fiscal year, the Congressional Budget Office estimated.  Tax receipts rose 0.4%.  Spending rose by about 3% due largely to increased spending on Social Security, Medicare and Medicaid, higher interest payments on the debt, and increased military spending.  As the economy continues to do well, those in charge might want to consider paying down some of the debt.

REFERENCES:

LIQUIFICATION: https://www.wsj.com/articles/where-the-earth-became-a-river-indonesia-quake-liquefied-solid-ground-1538771884?mod=searchresults&page=1&pos=1; https://www.aljazeera.com/news/2018/10/indonesia-earthquake-tsunami-latest-updates-181003060041729.html
LOWEST UNEMPLOYMENT RATE SINCE DECEMBER 1969:  https://www.calculatedriskblog.com/2018/10/september-employment-report-134000-jobs.html; https://www.wsj.com/articles/u-s-unemployment-rate-falls-to-lowest-level-since-1969-1538742766
A REFRESHER ON REQUIRED MINIMUM DISTRIBUTIONS (RMDS): https://www.whitecoatinvestor.com/dont-fear-the-reaper-rmds/
THIS SHOULD NOT HAPPEN DURING A STRONG ECONOMY:  https://www.wsj.com/articles/federal-revenues-level-despite-strong-growth-cbo-says-1538787152