Why We Are NOT All That Excited By The Strong Jobs Report!

The jobless rate hit a 50-year low in April, a good sign for the economy. The unemployment rate fell to 3.6% and was accompanied by solid wage growth. Wage growth outpaced inflation which was 1.9% as measured in March by the consumer price index. That’s the good news. The bad news is that the labor force participation rate declined slightly. A low labor force participation rate holds the economy back from achieving its full potential. While the immediate effect of a low labor participation rate may not be apparent, and the historically low jobless rate may be something to cheer, the long-term drag on the economy in reaching its full potential due to a low labor participation rate is something that is of concern.

We have been warning for quite some time of the potential problems that a low labor force participation rate can cause (see for example our Economic and Investment Review in the Winter edition of this newsletter). The economy’s potential growth is determined by the size of its labor force and how much that labor force can produce. Worker productivity in the U.S. has been sluggish for more than a decade but did show some slight improvement in the first quarter. Currently, the labor force participation rate is just below 63% (please see the chart below in Charts for Review and Thought). It has declined from above 67% in early 2000. While the decline in these numbers may not seem large, they are actually quite significant when you apply them to actual numbers of people and consider that roughly 63% of the people that could be part of the labor force are supporting the other 37% that could be, but are not, part of the labor force; plus this 63% are supporting those that can’t work for whatever reason.

It should be noted that the reported decline in the labor force participation rate may be due somewhat to a problem in the reporting. Two different surveys were cited in the labor force participation rate reporting. One survey showed a slight increase while the other survey showed a slight decline. But at best, the labor force participation rate was flat during the period. A flat labor force participation rate at its currently low level is nothing to be happy about. We would hope to see an increasing participation rate in the labor force for us to be able to view the labor picture as a strongly positive economic indicator.

Economic and Investment Highlights

Last Week

U.S. stock markets hit new highs again this week.

The combined GDP of the Eurozone’s 19 members increased at a 1.5% annual rate in the first quarter. This was a significant increase from the 0.9% rate in the fourth quarter of 2018. The Eurozone’s economic growth has been in a slowdown which deepened in the second half of last year.

The U.S. Federal Reserve held rates steady at its policy meeting last week and signaled that they are taking a wait-and-see approach on raising or lowering rates going forward. Inflation has remained well below the Fed’s target range of 2%. Some economists actually worry that the low inflation number could be a sign of impending economic weakness.

The Week Ahead

This link takes you to Econoday’s Economic Calendar and Economic Events and Analysis which shows the upcoming economic reporting events scheduled in the week and months ahead.


Note: The comments that follow are derived from the economic indicators referenced in the Resources section and other sources at the end of this report.

The Aruoba-Diebold-Scotti Business Conditions Index (ALS) has been trending up the last several weeks and is now very close to the zero line. This is a very positive indicator for the economy on a short-term basis.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.7 percent on May 3, up from 1.2 percent on May 1. This supports the ALS model assessment of an improving short-term economic environment.

The New York Fed Staff Nowcast for GDP stands at 2.1% for 2019:Q2.

The Chicago Fed National Activity Index (CFNAI) showed a slight pickup in economic activity in March.

All told, these short-term economic indicators are a positive analysis for the economy, at least on a short-term basis.

Expectations that stock prices will rise over the next six months increased 5.5 percentage points to 39.0% in the latest AAII Sentiment Survey. The rise puts optimism a little over the historical average of 38.5% for the survey. Please see the AAII Sentiment Survey for the complete results.

The latest Gross output (GO) reading suggests slow economic growth as we enter 2019.

On a longer-term basis, the forecasters in the Philadelphia Fed’s Survey of Professional Forecasters (as of March 22, 2019) predict real GDP will grow at an annual rate of 1.5 percent this quarter and 2.4 percent next quarter. On an annual-average over annual-average basis, the forecasters predict real GDP to grow 2.4 percent in 2019, 2.0 percent in 2020, and 1.8 percent in 2021. The forecasters predict the unemployment rate will average 3.7 percent in 2019 and 2020, 4.0 percent in 2021, and 4.2 percent in 2022.

For a more in-depth review and analysis of the economy, please see our mini-book on economic analysis and forecasting entitled: Simple and Effective Economic Forecasting.

Stock Market Valuations

Our estimates of the market valuations for two stock market indices, the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 (S&P 500), can be found in the file below:


We continue believe the economy is in a stable but somewhat vulnerable state. Nonetheless, it has remained fairly strong. In fact, the extremely strong first quarter GDP showing and the strong labor market conditions give us more confidence that the economy, now in its tenth year of expansion, can continue to grow. Please see our complete Economic and Investment Review in the Winter 2019 quarterly issue of the Intrinsic Value Wealth Report Newsletter.

With additional record setting highs set in the market last week, the market is becoming more overvalued. But that does not mean that a market correction is imminent. Markets can and do stay overvalued for long periods of time. As discussed above in the Economic and Investment Highlights section of this Commentary, we believe the economy is in a stable but vulnerable state. If the economy remains strong, the markets will likely remain strong. If the economy deteriorates, the markets may well correct. There are other events that could trigger a market correction, of course, but economic conditions are the most likely and foreseeable events that could make that happen.

We believe it is important to maintain a long-term view toward investing. This means that you should continue building your investment portfolio using the Cassandra Stock Selection Model to select individual securities that offer growth and value opportunities.

Chart for Review and Thought

Labor Force Participation Rate – The Labor Force Participation Rate stands at just below 63%, down from 67% in early 2000.


We have been researching the use of crowdsourcing for investment ideas. We will be sending a survey out in the next few weeks to get your input on the economy and the markets; and to get any investment ideas that you would like to share. We will compile this input and distribute the results to you and our other subscribers.

Dr. Wendee will be speaking at the Las Vegas Investment Club on June 24th.  He will be speaking on the topic of his popular Forbes article, Nine of the Best Ways to Build Wealth. Please contact Mike Lathigee at mike@mikelathigee.com if you would like to attend.

Dr. Wendee will be speaking at FreedomFest during its annual conference in Las Vegas, July 17 – 20, 2019.

Dr. Wendee will be a judge at the FundingPost June PitchFest Event on June 11, 2019 in San Diego. Click on this link for details on the event:

Intrinsic Value Wealth Creation pyramid

We always conclude our commentary with a discussion of the Intrinsic Value Wealth Creation Pyramid. The Intrinsic Value Wealth Creation Pyramid is designed to show some of the major categories for building wealth. It is the result of many years of study of the wealth building process; experience working with clients who have built considerable wealth; and my own personal experience building wealth. Newsletter subscribers should consult the Intrinsic Value Wealth Creation Pyramid as one of many useful investment tools while considering their investment plans.

The chart in this section is an expanded version of the Intrinsic Value Wealth Creation Pyramid Chart referenced in the Forbes.com article entitled, Nine Of The Best Ways To Build Wealth.


Economic Indicators

Below are links to a few of the many resources that we follow on a continuous basis to track the economy and financial markets on a short-term and long-term basis.

Real-Time and Current Economic Conditions

The Federal Reserve Bank of Philadelphia’s Aruoba-Diebold-Scotti Business Conditions (ADS) Index is designed to track real business conditions at high frequency. Click Aruoba-Diebold-Scotti Business Conditions Index to access this model.

Click GDPNow to access The Federal Reserve Bank of Atlanta’s GDPNow Forecasting Model.

The Federal Reserve Bank of New York’s Nowcast report tracks the evolution of the FRBNY Staff Nowcast of GDP growth and the impact of new data releases on the forecast. Click Nowcast to access the report and background information on the report.

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge overall economic activity and related inflationary pressure. Click CFNAI to access this index.

Economy At A Glance

The National Economic Trends charts provided by the Federal Reserve Bank of St. Louis (FRED) can be accessed by clicking the Economy At A Glance link below:

Economy At A Glance

Gross Output

Gross Output is a measure that may be more useful than the Gross Domestic Product (GDP) measure, as it looks at the top line of national income accounting. It is also a good measure to use in conjunction with GDP to get a better overall picture of the economy. This measure can be accessed by clicking the links below:

Gross Output By Industry


Gross Output (GO)

Surveys of Professional Forecasters

The Survey of Professional Forecasters’ web page offers the actual releases, documentation, mean and median forecasts of all the respondents in the Fed’s Survey of Professional Forecasters.  Click the following link to be taken to the Federal Reserve Bank of Philadelphia’s website to access the current survey: Survey of Professional Forecasters.

The Livingston Survey of Professional Forecasters’ web page offers the actual releases, documentation, mean and median forecasts of all the respondents in the Fed’s Livingston Survey. Click the following link to be taken to the Federal Reserve Bank of Philadelphia’s website to access the current survey: Livingston Survey.


Econoday offers some excellent resources for understanding and forecasting the economy. The link below takes you to Econoday’s Economic Calendar and Economic Events and Analysis sections. Please see Econoday’s Economic Calendar for upcoming economic reporting events in the week and months ahead.

AAII Investor Sentiment Survey

The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months: AAII Investor Sentiment Survey.

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