Let’s face it, when it comes to math most Americans simply throw up their hands in despair. No matter our age we have little or no confidence. In the rare times we aren’t speaking jargon, using words no one comprehends, the financial services industry only adds to the basic problem leaving us to believe, “it’s a random walk on Wall Street.” Speaking to a group of schoolchildren, Albert Einstein once confided:
“No matter what difficulties you may have with mathematics, mine were greater.”
Perhaps Einstein said it best when he said, “I have no special talents…I am only passionately curious.” I can understand being passionately curious. When it comes to the economy too many people throw up all kinds of charts, graphs, and numbers, often with no foundation, so that it appears to be impossible to even attempt to read the economic tea leaves. Perhaps it isn’t so complicated. Or a random walk that leaves one clueless. In fact, it may indeed be quite simple. For a visual description (in less than 5 minutes) please watch:
Maybe it’s not such a random walk
With the stock market posting new highs, the Bureau of Economic Analysis released its third and final estimate of real gross domestic product for the first three months of 2014. The release showed output in the U.S. declining at an annual rate of 2.9%. This is relative to fourth quarter 2013, when real GDP grew 2.6%. The Gross Domestic Product (GDP) in the United States was worth 16800 billion US dollars in 2013. The GDP value of the United States represents 27.10 percent of the world economy. GDP in the United States averaged 6145.56 USD Billion from 1960 until 2013, reaching an all-time high of 16800 USD Billion in 2013 and a record low of 520.53 USD Billion in 1960. GDP in the United States is reported by the World Bank. Economists don’t agree on a lot of things, but there may be two things where they do agree. Spending in this country has three parts:
- The consumer
Now, if you had three dogs in your back yard, which one would you watch the closest? That would be the dog that might do the most damage right? The one who gets your attention the most is biggest and the baddest dog of the three. Let’s take a closer look at our economic dogs here. As a percentage the US government stands at about 10% of spending, business is ranked at around 20% of all spending and the consumer is at the top of the list at 70% of spending. So the consumer is the biggest and the baddest dog to keep your eye on. Economists watch consumers. And you should too. The first question to answer is, What is the consumer doing; spending or saving? When the consumer is overwhelmingly spending the economy does well. If on the other hand that the consumer is in a savings mode the economy may do poorly.
Ordinary people following predictable patterns
In the last 2 elections we watched the ballots on the edge of our seats waiting for the results. First we noticed the blue states on the Eastern seaboard and out west were not leading indicators for who won. Neither was Florida. Neither was the Koch brothers who have more money than God. It was Ohio. Who lives in Ohio? Why it’s good old Homer and Marge Simpson. So instead of looking at the fringe states on the coasts, or the rich people or the smart people, pay more attention to the average person in the USA. The average income in America is a whopping $50k. It is Homer Simpson and his buddies, not you and me, who dictate what the economy is doing. That is the group to watch.
The group many people have focused on is the Baby Boomers. Out of 317 million American Boomers, those born between 1946-1964 are 78 million strong. Whether it was Gerber, Monopoly, the Whamo-frisbee, Schwinn bicycles or new housing purchases this group was like a giant egg moving through a python demanding everything money could buy with cash or credit. The group ranges from Michelle Obama age 50 to George W Bush who turns 68 this year. Don’t tell Boomers they are old. According to Pew Research Center, roughly 10,000 Boomers turn 65 every day and about 10,000 more will turn 65 every day for the next 19 years. Being passionately curious it is most interesting to note that peak spending and peak earning happens in our mid 40’s. Think of your parents. What do you need, other than more health care as you start turning 70 and older? Keep in mind the average age of death in this country is 79. The point is put prices on houses lower than they were, enjoy interest rates at the lowest levels you have ever seen in your life and you tell me what you think is ahead of us. Look at the economy the way it is. Not through a political lens. Not as it was. Not as you want it to be or as how others see it. Be objective. Be curious. Question the status quo.