The Independent Market Observer

Is the Economy Under the Weather?

Posted by Brad McMillan, CFA®, CFP®

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This entry was posted on Mar 24, 2015 3:50:00 PM

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economyThis will be a short-ish post, as I find myself battling a cold that’s getting worse. The weather, fortunately, seems to be getting better, so hopefully I will too at some point.

Like my health, the economy took a hit this winter. There’s a reasonable chance we’ll see some sort of “snowdown” in the data; indeed, we already have for many data points. The question is whether this represents a meaningful slowdown or, like last year, is simply the result of terrible winter weather.

Strong signs of economic health

From a macro point of view, I will point to my monthly economic update, which suggests the fundamentals are still solid.

From a common sense point of view, I’ll note two things:

  • Job creation continues at a very strong pace—faster over the past 12 months, in fact, than anything we saw in the mid-2000s. All of those jobs will support economic growth.
  • The price of oil continues to decline, which will continue to put money in consumers’ pockets—and to reduce business costs.

Given these two incredibly positive factors, a meaningful slowdown looks unlikely, and the arguments for it are interesting more as an exercise in psychology than economics.

Are our “problems” really so bad?

An uptick in savings: The first concern I've heard is that people aren’t growing their spending fast enough—that is, not taking their growing wage income and lower gas bills and running out to the store. We’ve seen the savings rate pick back up, and this is somehow a problem.

Don’t believe it. Higher savings may mean lower growth in the short term, but it will translate to longer and stronger growth in the medium and long term. Spending money we didn’t have got us into the crisis; increased savings levels now will not lead us into another one.

Lower oil prices: The second concern is that low oil prices might be bad for the economy. Bad for the stock market? Possibly, as many energy company stock prices show. Bad for banks? Possibly, as they’re stuck with energy-related loans that now don’t make much sense.

But bad for the economy overall? No. The benefits far outweigh the (very real) costs.

No reason not to be delighted

If you’d been told, a couple of years ago, that gas prices would be at multiyear lows and that job growth would be back to multiyear highs, you would have been delighted. You should still be delighted. Things should only continue to get better.

Any weakness so far will probably be weather related—and, just as we saw in 2014, improve later in the year. Unlike my cold, which seems to be settling in for a long stay.

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