Economic Update 10-30

With the ongoing shut-down of the U.S. Government, we are not receiving the normal economic releases we would normally be seeing. While this is one of the frustrating aspects of the shut-down, it is probably not as critical as other parts. In this regard, we are watching big picture initiatives by various companies and also earnings reports from individual corporations. It seems the employment picture might be becoming a concern. We are seeing some layoffs in various industries and hiring does not seem to be offsetting this trend. The Employment report would normally come out next week but will probably be delayed unless Congress votes to end the shut-down. At this time, that does not seem likely.

The one major economic event this week was the Federal Reserve cutting the Fed Funds Rate by a quarter-point yesterday as seen in the chart below.  While this was largely expected, it at least kept the downward direction in interest rates ongoing initially. Unfortunately, Chairman Powell in his follow-up remarks seemed to put a "damper" on the likely continuation of rate cuts at their next meeting in December. He gave his normal dependence of economic trends excuse but, more importantly, he blamed the government shut-down for adding an unknown aspect to economic activity. The financial markets, both equity and fixed-income, reacted somewhat negatively to his comments. I do think he is correct on the latter point.

Given the lack of economic data and employment concerns, I think it is prudent to be somewhat cautious in our investment approach at this time. We also need to realize that a high percentage of government workers are not receiving paychecks during this period. That factor alone dramatically impacts spending patterns of the consumer sector. Maybe we should not be paying our Representatives and Senators in Congress during this time. That might result in an immediate move to reopen the government. But....considering they would be the ones voting on such an initiative, I would not expect such an outcome at this time.

As I said above, we are remaining cautious at this time in our investment approach. We are looking to add fixed-income holdings where needed but are limiting our equity buys until we see a clearer picture of economic direction.