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The stars are aligned for stock investors. Stable economic growth, a strong labor market and low inflation.
Is it time to worry about the economy?
After all, the stock market is hitting record highs again, the jobs market is booming and the inflation bogeyman is no where to be found. Isn’t the economy due for a letdown after a nearly 10-year expansion that will set an all-time record in two months?
Read: U.S. creates 263,000 jobs in April as unemployment falls to 49-year low
Don’t count on it anytime soon.
For one thing, the economy actually isn’t running at full-tilt and doesn’t appear to be generating the sort of excesses that emerge right before recession.
Manufacturers have hit a rough patch, for instance, and retailers have reduced employment for three months in a row amid a long-term struggle to compete with internet rivals. Consumers also aren’t spending as rapidly as they were last year, either.
What’s going on instead is a resumption of steady and stable growth after the economy sputtered early in the year. Some segments of the economy are performing better than others, but the U.S. as a whole is expanding at moderate pace.
“The April employment report is yet another indicator suggesting that the soft spot that the U.S. economy went through at the end of 2018 and start of 2019 is long gone,” said David Berson, chief economist at Nationwide.
A light batch of economic reports this week won’t alter the narrative.
Job openings in March are expected to remain near 7 million, easily exceeding the 5.8 million people the government officially classifies as unemployed.
The trade deficit, meanwhile, probably rose a bit in March. A smaller trade deficit in the first quarter helped boost gross domestic product to 3.2%.
The headliner is the consumer price index on Friday. Every measure of inflation, including CPI, has showed waning price pressures since last summer. Inflation is running below the Federal Reserve’s 2% target and doesn’t appear likely to accelerate very much.
A recent increase in gasoline prices, however, almost certainly added an extra whiff of inflation in April. Economists polled by MarketWatch predict consumer prices will climb 0.4% for the second month in a row, largely because of oil.
A sustained increase in gas prices, however, is unlikely to last beyond the summer driving season. And a wave of business investment in automation and other technologies may be working to boost productivity and keep inflation in check.
Read: Productivity soars 3.6% in first quarter, drives fastest yearly gain since 2010
“If productivity growth stays healthy, inflation will likely stay low,” said senior economist Sal Guatieri of BMO Capital Markets.
For investors in stocks DJIA, -1.10% SPX, -1.07% Guatieri said, the stars are aligned. “Sustained healthy economic and job growth, rising productivity, tame inflation and low interest rates are about as close to nirvana as you can get.”
