What happened in the first quarter, Lassie?
Most economic data indicates the economy is experiencing strong growth. GDP and earnings growth have been very positive, yet there are troubling signs beneath the surface of the markets and economy. Here are some of the indicators which show all is not well.
First, President Biden passed a $1.9 trillion stimulus bill in the first quarter that put a lot of cash into the hands of consumers. Second, interest rates rose dramatically from December to March, affecting all cyclical industries sensitive to rate changes. Think about the impact interest rates have on home buying decisions and you realize that higher rates come with an economic cost.
While interest rates have fallen since their peak in March, higher inflation readings are providing a shock to consumers, despite the cash inflow from stimulus. Perhaps this explains the plunge in consumer confidence in the last few months. Housing market data points are also weaker, but many experts claim this is due to low inventory and not high prices. While many business people are excited about inflation contributing to higher sales, there is a downside.
Does our remarkable recovery hang on the thin thread of short-term stimulus? We'll find out in September.
Robert Lloyd, CFA®
Chief Investment Officer
Lloyds Intrepid Wealth Management
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