Both the S&P 500 and the Dow Jones Industrial Average were up for the week while the Nasdaq was down about -1.25%. The big news was mounting concerns over a tight labor market. Just 266,000 new jobs were filled in April. Analysts had expected upwards of 1 million new jobs. The possible reasons for the low figure range from fear of catching Covid-19 to collecting enough government money through stimulus and/or unemployment benefits to feel no pressure to find work. Nonetheless, we will need to overcome this soon before wage-inflation causes more problems for our recovery.

The nation’s current debt and deficit levels have been in the headlines quite a bit lately as President Biden continues to seek an expansion in government spending. Depending on who you talk with, it’s either the greatest expansion in history or will lead the U.S. to fiscal ruin. Above the din of political bantering, I thought it would helpful to provide some historical context as to the nation’s current fiscal situation. I will keep this as condensed as possible. All figures are through September 2020, the ending of the last full fiscal year for the federal government.

The chart below from the Fed shows as a percent of GDP (Gross Domestic Product) the nation’s debt was -14.95%, the fourth largest deficit on record. Most notably, the debt level was higher during World War II when it was in the mid -20% range. Yet, it is higher now than it was during 2009 when the effects of the financial crisis were at their peak.

The chart below also provides some great context for servicing our debt levels. It shows how much of the U.S. Government’s revenue is consumed by interest payments on the federal debt. We can see that while interest outlay in 2020 was higher through most of the 2000’s and 2010’s, it is lower than it was during most of the 1980’s and 1990’s.

 

• A shortage of available workers and raw materials are challenging the U.S. pandemic recovery. From Apple Inc. and Tempur Sealy International, companies are warning supply-chain issues could hamper growth in the short-term. Restaurants and other hospitality-type businesses continue to struggle with a lack of workers.
• The S&P 500 is reporting its highest year-over-year growth in earnings since the first quarter of 2010.
• Individual investors in the U.S. are holding the highest level of stocks on record as they increase their use of margin (borrowing) to magnify their bets.
• Service-sector activity continued to grow in the U.S. and around the world in April. The increased activity was also noted in Europe and India where extensive restrictions remain in place to contain Covid-19.
• After throwing markets into turmoil early Tuesday, Treasury Secretary, Janet Yellen corrected her comments. Originally the secretary said the Federal Reserve might have to raise interest rates to keep the economy from overheating. Later, she walked back the comments clarifying; “I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it.” The stock market recovered by the end of the day.
• Births in the U.S. dropped to their lowest level since 1979 last year. While some blamed the pandemic, others pointed out that birthrates never fully recovered from the 2007-2008 financial crisis.
• Hiring in the U.S. unexpectedly slowed in April, a sign the nation’s recovery from the pandemic still faces challenges as many business struggle to find workers or remain cautious about the economic outlook.
• Consumers flush with recent stimulus money pushed demand for U.S. imported goods to a record level in March, further expanding the trade deficit. The 5.6% increase over the prior month saw a record $74.4 billion deficit posted in March.
• The average cost of building a new single-family home in the U.S. has increased by 8% over the last year solely because of the rising cost of lumber. Many lumber mills in the U.S. were shuttered for as long as four months crimping supply as demand for new homes continued to rise. A beetle plague affecting Canadian forests has compounded the shortage problem.
• The Chicago Mercantile Exchange operator, CME Group, Inc. said it would permanently close most of its open-outcry trading pits in Chicago, ending one of the world’s last vestiges of old-fashioned floor trading. Floor trading for some commodities has existed in Chicago since the mid-19th century and has long been associated with financial markets.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc., and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors.