State of the Economy

Before getting into this week’s financial report, I wanted to take a moment and comment on my article from last week, Corn is King. In that article, I quoted the price of corn as being $800/bushel. Corn is quoted in cents, not dollars. The current price of corn is just over 800 cents/bushel, or $8/bushel. I can only attribute my misrepresentation to habit; when we constantly quote stock prices and bond prices in dollars, it flowed a little too easily. I should have caught this error in my proof reading but I did not, and for that I am sorry. I would like to thank my readers for pointing out my mistake in a courteous and professional manner, and I will do better in the future.

While presenting to a 401(k) plan that we advise up in Auburn Hills we were revisiting our economic forecasts from back in the 1st quarter of 2012 and found that many of our predictions came to fruition. We predicted that we would begin to see signs of a strengthening economy, but that policy would hold back the private sector more than anything. Sure enough, failed policies from the federal, state and local levels have resulted in a temporary freeze in the economy.

Manufacturing, retail sales and housing prices and activity are all up in the reporting period, however hiring has leveled off and jobless claims have ticked up slightly. Unemployment has continued to be an issue for this recovery for 2 main reasons; we lack skilled labor and future employee costs are unknown.

Some readers have questioned our economic analysis as being politically biased and driven. We do our best to let the investing public know that the markets and public policy have a very close relationship; one tends to mold the other. My father, Dock D. Treece, has been in the financial services industry since 1979 and has made money under every president since Jimmy Carter; case in point, we do not allow our own political perspectives to influence our investment goals, objectives or choices. The fact of the matter is that the Affordable Care Act has many employers terrified to take on new staff. This is not a comment on socialized medicine, the current administration or the healthcare industry, this is simply commenting on documented responses of business owners to the law as it is written. If the Affordable Care Act carries on as is, expect unemployment to remain high for an extended period of time.

Private sector business owners have also noticed a frightening trend when hiring; finding skilled workers has proven to be very difficult. Between a lack of interest in younger generations to focus on engineering studies and many apprenticeship training programs closing their doors, finding the right people for the manufacturing jobs that have been moving back from overseas has not been an easy task.

“Onshoring” of manufacturing jobs has been another trend that we predicted well over a year ago. Between rising labor costs abroad and the inability to protect product patents, many manufacturers have decided to shift their factories to the US and North America (Bose and Honda are 2 big ones to name a few).

Adding to the solid economic numbers, Industrial Production was up .6% year over year and Home Builder Confidence turned in at the highest level since February of 2007. This shows us that the bottom of the real estate market has likely come and gone, and buyers are now looking for new construction homes instead of older model homes from the 40’s, 50’s and 60’s.

One cause for concern that we have has been an increase in food, energy and housing costs, or what is known in economics as inelastic goods. These are items that even when the price increases, their demand stays relatively constant. When prices increase for inelastic goods, consumers have fewer dollars to allocate towards discretionary spending, i.e. entertainment. Historically, when these prices increase and the economy fails to grow, we have what is called stagflation, which was a term tightly associated with the Misery Index under President Carter.

On the whole, the economy is improving, slowly but surely. In our opinion there are many policy choices that could be made to speed up the recovery, but all things considered the US economy is getting stronger, even if the numbers do not always reflect it.

Ben Treece is a 2009 Graduate from the University of Miami (FL), BBA International Finance and Marketing. He is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp. The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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