It was 2008 in early October, and Rhoda and I were enjoying our last couple days of basking in the beauty of Yellowstone National Park—one of our cherished times away from the office. But suddenly everything changed, and our peaceful retreat was turned upside down. My phone rang, and when I answered I was surprised by the panicked voice of my newest client: “Get me out of this market George! You have to do something!” I had no idea what had happened. I told her I’d do some research and call her back right away.
Of course, if you’ve ever visited the Yellowstone Lodge (or any lodge in a large nature area), you know my first challenge. The Lodge has intermittent Internet on a good day, and this was anything but that. Just before the market closed that afternoon, the Treasury Department announced they were going to let Lehman Brothers “fail”. There would be no bailout. In its last 30 minutes of the day, the market dropped over 150 points. The media started shouting about the panic that would likely hit on Monday since Lehman Brothers wasn’t alone—many banks had problem balance sheets that were just as bad. This was unprecedented in my lifetime, and I knew then we were in for something steeper than even the tallest peak at Yellowstone.
There was little I could do except return to Denver to be here for my clients who were terrified of what this meant to their life savings and struggling hard to figure out what it meant to them and how to move forward. In less than 8 hours I was at my desk working to find a strategy—any strategy—that might be beneficial if and when the predicted panic hit. The one thing I was sure of is that I needed to persuade my clients not to sell. It would be like grabbing for a falling knife.
The Great Recession had its beginning on that day I flew back from Yellowstone. I couldn’t fathom then that the downdraft would last until the spring of 2009. Nor could I have predicted that that after hitting bottom at 6443 in March that year that the Dow would double in less than three years. The prognosticators kept predicting lower and lower stock averages even when the Dow was at 6443. Some panicked—and lost. Those who kept cool heads analyzed the big picture, determined the context and consequence of what was happening, and made careful choices based on the facts. They were the clear winners in the end.
What happened in those years is a constant reminder to me of how to approach current events—especially those that paint a potentially ominous picture for the stock market. Will China’s economic slowdown throw the US into recession? Are slowing new job numbers powerful enough to throw us off track? Can consumers keep up their spending growth? They’re all questions to consider, and in each case we need to take the time to make careful, thoughtful decisions and not fall into the reactionary mindset that the media loves to perpetuate. (For more on that timeless topic, re-read my blog Headlines sell—but don’t let them mislead you!)
The market is having some expected jitters after last week’s Bureau of Labor Statistics report that only 32,000 new jobs were created in May—nowhere near the expected 150,000 jobs. It’s good to note that the Bureau states that number is within 115,000 jobs of possible error. Here’s a great article in the Wall Street Journal on the huge margin of error—and frequent revisions—of payroll and other data. Even so, the important facts to keep in mind are these:
- Job growth inevitably varies significantly from month to month, especially in a recovering economy such as this one.
- In May, despite relatively meager job growth, unemployment decreased by 0.3% to 4.7%. That’s 484,000 fewer unemployed.
- Wage growth is on the rise at more than +2.5%.
- Job growth is “stronger for longer” in this recovery due to the depth of the last recession.
- Job growth will decline as the unemployment rate sinks further and employers struggle to find enough skilled workers to fill available positions.
Putting these numbers in context is an important piece of the puzzle as well. Some parts of the country, including Colorado Springs and Denver, are reporting a shortage of skilled labor in construction—a challenge that is holding back major construction projects. Health care, technology, and accounting are just a few examples of fields that have a bright future for jobs. At the same time, non-skilled workers are hurting, and pending minimum wage increases in many states and cities have employers on a mission to automate hourly-wage jobs.
All of this is important information, but economic growth is still driven primarily by consumer spending—and spending requires discretionary income that results from an increase in total income. Looking at changes in average or median income is fine, but ultimately it’s the change in discretionary income that matters most to the economy.
No matter how the market reacts to the job numbers—or changes in interest rates, or China’s economy, or the upcoming election—keeping these individual factors in perspective is key. To keep a cool head, look at the big picture, analyze new information with care, and keep your eye on the big picture. Speaking from experience, it’s the easiest (and often the most lucrative) way to take on even the tallest mountains.
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