The Improving U.S. Economy Can Help You Ignore Distractions

KALAMAZOO, Mich. - July 27, 2015 - PRLog -- Recent economic indicators have signaled that the economy is improving, and many hoped June's job growth would build on May's strong gains. Instead, job growth was modest, continuing the trend over the past few years. The economy added 223,000 jobs, slightly less than the 230,000 expected, according to Bloomberg. The unemployment rate fell to 5.3%, as the labor force shrank. In addition, wages were unchanged from May, up just 2% over the past year, and in line with wage growth throughout the six-year recovery.

Solid Growth Ahead
After contracting slightly in the first quarter of 2015, the economy appears to be on track to return to solid growth in the second quarter and the rest of the year.

•   Consumer spending jumped 0.9% in May, and personal income rose 0.4%, reflecting the rebound from first-quarter weakness.
•   Manufacturing expanded in June at its fastest pace in five months, suggesting the drag from the strong dollar may be lessening.
•   New and existing home sales strengthened in May, and housing prices were up 4.9% over the past year, continuing the positive trend in housing.
Consumer confidence rose more than expected in June.

If the economy continues to improve, with modest job growth and inflation moving toward 2%, the Federal Reserve has indicated it plans to start to increase short-term interest rates later this year. In our view, that's a positive sign. Make sure your portfolio is prepared with a variety of bonds with different maturities.

Don't Be Distracted
Headlines from Greece and Puerto Rico have recently raised concerns and triggered market volatility. In both cases, overspending has left them without the money to pay their bills. Their troubles are distressing, but your focus should remain on making decisions based on your situation, not on what's happening there.

•   More Greek drama ahead - Greece needs another bailout package to reopen its banks, pay its debts and continue using the euro as its currency. Unfortunately, Sunday's referendum isn't likely to resolve the future for Greece – we expect more drama ahead. Remember that while the headlines may be troubling, Greece's economy is less than 2% of the eurozone and less than 0.5% of the world.

•   Puerto Rico - Concerns about Puerto Rico's ability to make payments on a variety of different bonds have escalated recently. Recent events in Puerto Rico make it more likely that bond investors could be disappointed, which is why we recommend diversifying your fixed-income investments.

Focus on Fundamentals
Many different short-term distractions have triggered rising volatility in both stocks and bonds– and we think more are on the horizon. But stocks have tended to rise despite troublesome headlines. That's because the fundamentals of improving economic growth and rising corporate earnings are positive signs, which we expect to continue.
To help you ignore the distractions, make sure your portfolio has the right mix of stocks, bonds and international investments for your situation and comfort level with risk. That way, you'll be able to stay invested and use any market pullbacks as opportunities to add quality investments.

Kate Warne, Ph.D., CFA
Investment Strategist

Investing in equities involves risks. The value of shares will fluctuate, and you may lose principal. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.