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The Most Important Economic Charts You'll See This MonthBy
Wednesday, October 29, 2014
The market is crashing... Ebola is running rampant... Look out for cloaked and bearded ISIS warriors.
You can always find a lot of fear-mongering in the news and in financial markets. Right now, it appears to be a particularly worrisome time.
Most of it is nonsense...
The breathless fear-casting is largely meant to salvage dropping news ratings.
Always remember... paying too much attention to "news" is bad for your personal health and wealth. Regular readers of Retirement Millionaire understand the power of stress on your health, especially worrying about things you cannot control – things like the mini-wars around the Middle East. And it's not rational to fear things that will never do any damage to you.
So today, we're going to take a breath, calm down, and assess our risks. Doing so will help us "sleep well at night," especially when it comes to the economy. After all, no systemic problems – like a subprime meltdown, a tech bubble, or a gas crisis – are really fueling a serious panic.
Actually, the economy is healthy by virtually every measure I know. Let me show you...
The global economy is really based on the consumer. In the U.S., the consumer accounts for about 70% of the economy. So let's start there...
Consumer spending is growing. Personal consumption expenditures – essentially the amount of money that people are spending – have reached $11.9 trillion per year.
A lot of economic indicators are hitting new highs since the economy is bigger than ever. So let's focus more on growth rates than nominal dollar figures.
The growth in personal expenditures is now hitting 4.1%. In other words, personal spending is 4.1% higher than at the same time last year. That's up from 3% in February, not to mention it's a total reversal from the 3.3% contraction in 2009.
 The reason people are willing to spend... is confidence. According to the University of Michigan Consumer Sentiment Index, consumers are consistently getting more excited about spending. The index's current reading of 86.4 is above its 85.1 average dating back to its 1966 beginning... and we're now at the highest reading since 2006.
 The reason people have gotten so confident... they are working again. The growth of total nonfarm employees finally hit a rate of about 2% per year. That matches a growing population, an increasing rate of retiring Baby Boomers, and the aging of America. It's also about the normal rate of growth since the 1990s.
 That employment growth also comes along with sharp declines in unemployment and initial unemployment claims.
Most important, we've finally seen some momentum in wage growth. During the first few years of the recovery, workers' wages showed slowing signs of growth. That has turned around a bit. The average hourly earnings of production employees is now $20.67, about 2.2% more than last year. It's still slow, but growth is picking up.
 That consumer activity is passing into the business side of things.
For example, businesses are getting bank loans for expansion and capital investment. Total bank loans are growing at about 12% per year. That's higher than it has been for most of the last 30 years.
 You can also see this in the excitement levels of manufacturers. The Institute of Supply Management Composite Index takes a monthly poll of 400 purchasing managers across various manufacturing sectors, asking about their plans for investing and buying.
When the index is above 50, it means these manufacturers plan on expanding their business.
Right now, the Purchasing Managers Index (PMI) is about as high as it gets. The current reading is 56.6. That's a hair under its August high of 59.
 That index measures future plans, but real production is already growing fast. The Industrial Production Index combines the actual production of 312 different materials from manufacturing, mining, and electric and gas utilities in the U.S. Its growth is accelerating and hitting new highs each month.
 Economics doesn't get simpler than this. Consumers are happy. They are spending. The factories respond by picking up production. Total industrial production is running at 79.3% of capacity, a new post-recession high. Plus, oil prices are about 20% lower than just a few months ago. Low energy costs should keep pushing these trends forward.
So don't buy into the fear-mongering of the 24-hour news cycle. The same things that have driven this bull market are still in place... Interest rates remain low, the economy is healthy and growing (albeit slowly), and now, we have the added benefit of lower oil prices.
As soon as these things begin to change, we'll let you know.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig Jr.
Further Reading:
Doc says there's also a lot of hype about rising interest rates... stoking fears about a market collapse. But "rising rates won't stall the stock market," he writes. Find out why right here.
Interest rates are complex and unpredictable. "That's why the best approach is to build a diversified portfolio that's prepared for any interest-rate environment," Doc writes. Learn how here: My No. 1 Way to Reduce Interest-Rate Risk.
Market NotesTHE LATEST ON THE BIOTECH BULL MARKET Despite recent broad market weakness, biotech stocks continue to soar...
In 2012, we urged readers to buy the biotech sector. Our advice was well-timed. The Nasdaq Biotech Index more than doubled in less than two years. Our preferred way to trade the sector, the leveraged biotech fund (BIB), more than quadrupled in value. But after a big correction this spring, many people said the party was over...
Shares of Gilead Sciences (GILD) are a good way to gauge the action in biotech. Gilead is a giant "blue chip" in the biotech sector. When big money managers want exposure to biotech, Gilead is one of the first names they buy. It's an industry leader with strong sales growth.
In August, we pointed to Gilead to show you the biotech bull market was back. And as you can see from the chart below, that was just the beginning. Since our note in August, Gilead shares are up 20%... and just hit a new all-time high. The biotech bull market is still going strong.
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