Subscribers to my investment newsletter PowerTrend Profits have heard me talk about how misleading a number of economic metrics can be. That’s why, as part of my normal, everyday data-point gathering, I read, peruse and examine a slew of articles, websites and financial reports. The strategy is to string together enough data points to have a cohesive view not only of what’s going on, but what is more than likely to happen in the coming months.
The first step is to understand what is really going on in the economy. A case in point is the mainstream media’s “reporting” on the unemployment rate. Such reports go something more or less like this -- “the unemployment rate fell again this month.” While that is technically true, it doesn’t really tell you why it's dropping -- and as the saying goes, the devil is in the details. If you were to dig through the appendices that accompany the monthly Employment Report from the Labor Department, you would see that far more Americans have been dropping out of the labor force than new jobs have been created. In other words, the unemployment rate is dropping for the wrong reason.
To me, a far more revealing and insightful indicator is the payroll to population data released by Gallup each month. As I said at the World MoneyShow in Orlando recently, this is some of the scariest data. When I showed the graph below as part of my presentation, it was met with gasps. It is not a pretty picture when only 42% of the population is working, and it points to big problems down the road.
That’s the base, so what’s coming down the road?
Sifting through several data sources confirms something I am sure you are already well aware of -- wages remain under pressure, with little to no rise year over year once adjusted for inflation. Despite the inflation figures reported by the Bureau of Labor Statistics, you and I have felt the pain of our dollars not going as far during the last few years. I’m sure you’ve walked out of the grocery store asking yourself “I just spent how much on how little?” And for those of you that missed this trick, a number of companies kept their prices flat during the last few years, only to shrink the package size for cereal, cookies and a number of other items.
Chris Versace is the editor of PowerTrend Brief — a FREE, weekly electronic newsletter. He also writes PowerTrend Profits, a paid monthly newsletter that helps individual investors profit through buying shares of companies poised to win big in the 8 PowerTrends, as well as writes the PowerTrader trading service that seeks to deliver short-term gains using stocks, ETFs and options. Chris has been ranked an All Star Analyst by Zacks Investment Research.
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