Slower Growth in Early 2015 Shouldn't Last

DEWITT, Mich. - May 4, 2015 - PRLog -- March's disappointing job growth is one more sign that the economy seems to have slowed at the start of the year. The harsh winter weather (especially in the Northeast), the immediate impact of falling oil prices and a stronger U.S. dollar have factored into current conditions. But similar to last year, we think the slowdown is likely to be short-term because improving consumer sentiment, continued job growth and lower prices at the pump can support consumer spending throughout the year. The stock market was essentially flat in the first quarter and interest rates declined slightly, reflecting expectations that the Federal Reserve (Fed) won't start to hike short-term rates until later in the year.

Slower Job Growth in March

Let's take a closer look at the March job numbers:

•  The economy added only 126,000 jobs, well below expectations for a 245,000 increase, according to Bloomberg.
•  Revisions reduced January and February job gains, but both remained above 200,000.
•  The March unemployment rate remained 5.5%, as expected.
•  Average wages were up 2.1% over the past year, which is similar to gains in the past.

Keep in mind, though, that March's sluggish job growth follows the best 12 months of job gains since 1994. In addition, the economy has gained more than 3.7 million jobs since the start of 2014.

Outlook Remains Favorable

Despite softer economic growth in the first quarter, we think the U.S. economy should accelerate slightly to grow between 2.5% and 3.0% in 2015. That would provide a solid foundation for rising earnings and higher stock prices over time. In addition, consumer confidence is now at its highest level since 2007, according to the Conference Board. And as the year continues, we expect more positive signs for investors: Lower oil prices can boost consumer spending, help non-energy corporate profits and improve global economic growth.

A Long-term View

The economy, like the stock market, rarely grows steadily. So how can you avoid overreacting and instead take advantage of opportunities? First of all, recognize that slower growth is frequently followed by stronger growth. But also make sure you're prepared by checking that your portfolio has an appropriate mix of stocks, bonds and international investments based on your individual situation and comfort level with risk. A well-diversified portfolio can help you stay focused on your long-term financial goals – not on the monthly economic reports – and help keep you on track toward reaching them.

Kate Warne, Ph.D., CFA
Investment Strategist