The consumer is definitely getting squeezed on the necessities, as gas is nearly $4 at the pump. However, the consumer is still spending as consumer confidence is still up. We expect families will continue to take vacations, and perhaps, may even drive more despite the higher fuel prices. Airline ticket prices are high, so we expect to see more families vacationing within driving distance. We are looking ahead to a strong earnings season, which we feel will keep our recovery moving forward.
President Obama’s Deficit Plan
- In a speech on Wednesday, the president asked Congress to pass a combination of tax increases and spending cuts to limit the nation’s long-term budget deficits.
- The plan includes tax increases for the “wealthy”—those making more than $250,000 a year;
- The plan was met with distain from both parties, and
- His plan is expected to cut the deficit by $4 trillion over 12 years, but also commit to across-the-board spending cuts and tax increases if the initial targets are not met by 2014.
Broad Picture Economics
- Initial jobless claims increased to 412,000 for the week ending April 9th, and the prior week’s data was revised upward.
- We feel the gain should be taken with a grain of salt, considering the volatility of the weekly data.
- Continuing claims fell to 3.68 million for the week ending April 2. However, this does not include the millions more on extended and emergency benefits.
- Sentiment indicates that gross domestic product growth will be lower for the first quarter relative to previous quarters.
- We do not believe it will be as low as 2%, and
- Consumers are still spending.
- We are seeing inflation in the Producer Price Index.
- Prices for finished goods rose 0.7% in March;
- The core PPI rose 0.3%, which suggests companies are able to pass-through higher costs to consumers.
- Consumers, however, are saving money on products they are not buying, i.e., televisions and appliances, and
- Prices at the gas pump and at the grocery store are hurting the consumer.
- Consumer Price Index growth is declining because the cost of existing homes is decreasing.
- Thus the “implied rents” is decreasing. Our mortgage payments, however, are certainly not decreasing.
- Wages are up only slightly.
- It is reminiscent of what happened in the 1970s.
- However, we are not having the wage spiral increase.
- We have plenty of slack in the workforce.
- Not quite at stagflation because we have some growth.
- Despite the consumer getting hit, he is still spending.
- Consumer confidence is up;
- Retail sales are up but slowed in March, only growing 0.4%–the slowest growth rate since June 2010, and
- Excluding autos, growth was 0.8%, which was the fastest since November.
Earnings are still strong at a 13.2% growth forecast.
- Industrials, Materials and Energy are expected to be up.
- We expect to see some surprises in Consumer Staples because they began to pass on increased costs to the consumer at the beginning of the year.
- Alcoa (NYSE: AA) reported a profit on stronger sales with higher aluminum prices that were offset by a weaker dollar and higher costs for energy and raw materials.
- Alcoa earned $0.28 a share, beating analysts’ estimates by a cent, and
- Sales increased to $5.96 billion, but fell short of expectations.
- JPMorgan Chase & Co. (NYSE: JPM) reported a 67% jump in growth of investment banking fees and a drop in losses from credit cards.
- JPM Earned $5.6 billion, or $1.28 a share, beating analysts’ expectations of $1.15 a share, and
- The slump in real estate continued to weigh on the company.
- Progressive Corp. (NYSE: PGR) posted a 23% increase in earnings.
- Net income climbed to $362.9 million, and
- Policy sales rose to $3.9 billion or 3.2% from last year.
- Next week, we have 14 holdings in the Traditional Recommended Portfolio reporting.
- 20% of the Standard & Poor’s 500 Index will report.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
