Keep your eyes on the
data.
There was much to be said
for U.S. stock markets’ performance during October. Both the Dow Jones
Industrial Average and the Standard & Poor’s 500 Index delivered their best
monthly performance in four years, according to Barron’s.
Any celebration of strong
market performance was cut short when the Commerce released last week. GDP was
in positive territory, up 1.5 percent for the period, but growth fell short of
second quarter’s 3.9 percent, according to the BBC.
The primary reason for the
decline was falling inventories. During third quarter both individuals and
companies were worried about a possible slowdown in global growth. The Economist reported one reason
companies may have reduced inventories is because they feared demand for goods would
not be strong if the world economy weakens. That didn’t prove out as sales of
American goods and services grew by 3 percent during the third quarter. When
inventories are excluded, U.S. GDP growth was 2.9 percent, which many experts
would say is pretty healthy growth.
Consumer spending
comprises a much bigger part of U.S. GDP (68 percent) than does private
investment by businesses and financial institutions (17 percent). Consumer
spending numbers also were released last Friday and showed a 0.1 percent
increase, which was smaller than many had expected. Experts cited by BloombergBusiness suggest that number
could move higher if wages improve. The
Economist concurred:
“…if the American consumer
defies firms’ gloomy forecasts and continues to spend, investment will
eventually return. There is good reason to believe that will happen. In cash
terms, disposable personal income grew at an annualized pace of 4.8 percent,
helped by cheap fuel. Consumers are more confident about their personal
finances than at any time since 2007, according to the University of Michigan’s
latest survey.”
Stay tuned. Information
about U.S. jobs will be released next week. In theory, each piece of data
should help investors gain a better understanding of what’s happening
economically.
most Americans
agree. In
a recent newsletter, Jeremy Grantham of GMO, a global investment management
firm, discussed research on wealth inequality conducted by Duke University
Professor of Psychology and Behavioral Economics, Dan Ariely, and Professor of
Business Administration at the Harvard
Business School, Michael Norton. Grantham wrote:
“The title of the article pretty much says it all:
“Americans want to live in a much more equal country (they just don’t realize
it)”. The guts of the data is a survey of over 5,000 Americans, carefully
selected to be a balanced representation of the population. They were first
asked how equal they believed a society should be in income and capital, and
then asked how equal they believed it was in real life… Self-identification as
Republican or Democrat made surprisingly little difference. The exhibit’s real
shocker is the actual distribution of wealth, which is far worse than the
participants believed and far, far worse than they believed to be fair.”
Study participants
were given a choice of three wealth distribution models and the directive to
“imagine that if you joined this nation, you would be randomly assigned to a
place in the distribution, so you could end up anywhere in this distribution,
from the very richest to the very poorest.”
So, what did Americans want?
Overall, study
participants chose imperfect wealth distribution over perfect wealth
distribution. However, more than 90 percent of Republicans and more than 90
percent of Democrats preferred a model with more equal distribution of wealth
(11 percent in the poorest quintile, 21 percent in the second poorest, 15
percent in the next, 36 percent in the second richest, and 18 percent in the
richest quintile) than the actual wealth distribution in the U.S. at the time
(84 percent in the poorest quintile, 11 percent in the second poorest, 4
percent in the next, 0.2 percent in the second richest, and 0.1 percent in the
richest quintile). Estimates of ideal wealth distribution were relatively
similar across gender and income levels, as well.
Weekly Focus – Think About It
“I think the
American Dream used to be achieving one's goals in your field of choice – and
from that, all other things would follow. Now, I think the dream has morphed
into the pursuit of money: Accumulate enough of it, and the rest will follow.”
--Buzz Aldrin, American engineer and former astronaut
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