Dec 6, 2023
With a persistently low unemployment rate and robust gross domestic product (GDP) growth, the U.S. economy appears to be exhibiting signs of strength.
But according to Lauren Goodwin, economist and director of portfolio strategy at New York Life Investments, the situation may not be as favorable as these indicators suggest.
Advertisement
“The employment report that we saw today, to me, is a pretty clear signal that the last of our economic dominoes are beginning to topple,” she said in a recent interview with CNBC’s Brian Sullivan, referencing the Labor Department’s October 2023 jobs report.
Thanks for subscribing!
Read the best of Moneywise in 5 minutes or less.
By signing up, you accept Moneywise Terms of Use, Subscription Agreement, and Privacy Policy.
Sullivan concurred, noting frequent downward revisions made to past jobs figures.
In the October jobs report, the initially reported change in total nonfarm payroll employment for August was revised down by 62,000, and the figure for September was also adjusted downward, by 39,000.
“I'm not putting on the tinfoil hat or anything, but sometimes the government data doesn't always match up with maybe what your ears and eyes see or people tell you,” Sullivan said.
“So, I'm hearing you say you're a little bit concerned, but the macro government data shows that it's the greatest economy in the history of the world.”
Goodwin responded with a touch of humor, saying, “I think you’d look amazing in a tinfoil hat.”
Leads vs lags
Sullivan referenced a strong GDP figure as evidence of a “greatest economy” narrative.
On Nov. 29, the Commerce Department reported its latest estimate that real GDP increased at an annual rate of 5.2% in the third quarter of 2023. This figure marked the biggest increase since the fourth quarter of 2021. It's up from the initial estimate of 4.9% made the previous month.
Advertisement
Goodwin maintains a cautious approach when interpreting macroeconomic indicators.
“What you're describing is really a matter of leads and lags,” she told Sullivan.
Leading indicators are predictive economic measures that tend to change before the economy starts to follow a particular pattern and can be used to anticipate movements in the economic environment. Lagging indicators, on the other hand, are metrics that change after the economy as a whole does.
According to Goodwin, the GDP figure has limited predictive power regarding future economic activity.
“The Q3 GDP data doesn't tell us anything about the way employment’s going to evolve in the next couple of months,” she remarked.
Advertisement
Must Read
- The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100
- Here’s the average income of Americans by age in 2026. Are you keeping up or falling behind?
- Insurance companies profit most from drivers who auto-renew without shopping around. Comparing 100+ quotes takes 2 minutes and costs nothing
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Will stocks pull back?
The S&P 500 has climbed about 19% in 2023, albeit with considerable volatility. Sullivan highlights observations from various experts suggesting that stocks might be overvalued.
Goodwin says that from a tactical perspective, she expects to see weakness in the equity market. However, she also notes that valuations “aren’t a great timing indicator.”
She added: “When we look at timing of market weakness, we're really looking at when do jobless claims start to materially rise, and when do earnings start to fall off. That's when the equity market says, ‘Oh, we're in recession,’ and that's when we see valuation weakness. It's not going to come just because valuations are high right now,” she explained, noting that this shift could be a few months in the future.
If concerns about market weakness and overvalued stocks are weighing on your mind, it might be wise to consider diversifying your investment portfolio beyond the stock market.
You May Also Like
- JP Morgan sees gold hitting $6,000/oz before 2027 — and a Gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
