Spring surprise: Stronger job growth

Prepare for possible summer slowdown
By KATE WARNE

The economy received a nice spring surprise in the form of higher job growth. Job growth picked up in April as the U.S. economy added 165,000 jobs, which was well above the 140,000 expected, according to Bloomberg.

The unemployment rate edged dow n to 7.5 percent from 7.6 percent in March. Combined with upward revisions for both February and March, the economy added 783,000 jobs in the first four months of the year, slightly above last year’s pace.

Stocks rose sharply in response, again reaching new record highs, relieved that the slowdown in March job growth didn’t linger into April.

SUMMER ECONOMIC SLOWDOWN—Recent economic indicators have suggested the economy may be slowing again, after expanding at an annual rate of 2.5 percent in the first quarter. The federal government’s spending cuts (sequestration) are a drag on overall growth, and manufacturing output appears to be decelerating. But don’t let any signs of slower growth over the next few months distress you. Keep in mind the following:

• Stronger contributions from housing and autos partially offset the effects of sequestration and slowing manufacturing output.

• Consumers have kept spending steadily and seem to be feeling more conf ident now, suggesting any slowdown could be brief.

The quarter-to-quarter growth rate of the economy is likely to remain bumpy, and that means any slowdow n isn’t likely to last. Just like over the past few years, we expect the overall pace of economic growth in 2013 to remain about 2 percent.

PREPARATION, PERSISTENCE— Stocks are at record highs, buoyed by ongoing modest economic growth and rising earnings. Across the country, household wealth has also reached new highs, boosting confidence and supporting further growth. Many people’s finances have healed, but their psyches are still bruised. That’s not surprising, especially when so many remain unemployed. Although there are many concerns, worrying and waiting aren’t the best way to avoid them — preparation and persistence are much more effective.

STAY INVESTED—Historically, stocks have continued to rise after reaching record highs, for an average gain of 40% over the following 21 months.* So don’t wait on the sidelines. Instead, take the proper steps to prepare and persist:

• Ma ke sure you have t he appropriate mix of quality stocks and bonds in your portfolio.

• Diversify your stock and bond holdings so that no individual investment is too large.

However, remember that stocks don’t rise smoothly over time. You’ll need persistence to stay invested and add stocks during the inevitable and normal stock market declines that always occur unexpectedly.

With preparation and persistence, you can be ready for spring surprises — like April’s stronger job growth — as well as any signs of a summer slowdown, and be poised to stay on track toward your long- term financial goals.

Source: Ned Davis Research. Past performance is not a guarantee of future results. Investing in equities involves risk. The value of your shares will fluctuate and you may lose principal.


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