The expansion since the recession has been a bit like an Independence Day party with no fireworks, food or drink. "This is the fifth anniversary of this so-called recovery," notes economist Ken Mayland of Clearview Economics. "And wage growth has yet to pick up."
Are we having fun yet? Instead of a sizzler, we've seen a fizzler.
A blast of news will come on the day before July 4, when the Labor Department reports on the nation's job market. An unemployment report on a Thursday is unusual, dictated by the federal holiday. The week's U.S. economic data will be jammed into four days instead of five.
Here's what's on tap this week:
- The National Association of Realtors reports on May pending home sales, Monday at 10 a.m. (All times Eastern.)
- The Institute for Supply Management releases the June manufacturing index, Tuesday at 10 a.m.
- Automakers report on June sales, throughout the day Tuesday.
- The Commerce Department reports on May factory orders, Wednesday at 10 a.m.
- The Labor Department reports on the June employment situation, Thursday at 8:30 a.m.
Jobs: Read beneath the headlines
Of course, we'll be looking for any movement in the unemployment rate and the number of jobs added in June. That's a given. But the unemployment rate alone hasn't been consistently useful in portraying the health of the job market. That's because it has occasionally declined due to large numbers of Americans giving up looking for work. That's not the kind of movement we want to see.
So we'll also be watching some other key metrics, including the size of the labor force and incomes. In an ideal world, we'd see the jobless rate move down, the labor force expand and incomes rise. We can hope, can't we?
Bond highlights for summer
Will bonds have more fun? Days of higher yields may indeed be ahead, so don’t ignore the fixed-income market.
Mark Hamrick: From Bankrate.com, This is "Your Money This Week."
I'm Mark Hamrick in Washington.
We hear the phrase all the time in the financial world: "a low-interest-rate environment."
The Federal Reserve has parked benchmark interest rates at between zero and one-quarter of 1 percent since December 2008. And we're expecting it to begin finally raising rates in 2015.
It's time to give the bond market some overdue love. While stocks garner most of the press, the fixed-income world chugs along in understated fashion.
Two great guests tell us what we need to know about the bond market, whether a novice or investing veteran.
We begin with Marilyn Cohen of Envision Capital Management in Los Angeles, and follow up with Brian Rehling, chief fixed income strategist for Wells Fargo Advisors.
All of that and more coming up on "Your Money This Week."
I suspect if we quizzed the general public, most folks would have quite a bit more knowledge about the stock market than the bond market. And in some ways that's too bad, because we all need to save and invest. Fixed-income plays an important part in a diversified portfolio.
Our first guess is Marilyn Cohen, founder of Envision Capital Management in Los Angeles.
To begin, I asked Marilyn if interest rates are as low as they can go, for some time to come.
Marilyn Cohen: I think that we are in the same old trading range. And, could we go back to a 2 percent yield on the 10-year? Yes, if some kind of big economic disappointment happens, or it even gets worse in the Middle East. But between 2 and 3 percent is the trading range we have been stuck in for a long time, even though the bears have not been happy about that.
Mark Hamrick: Now when the move to higher ground in the sense of interest rates does come, how do you think it will present itself and what will it look like?
Marilyn Cohen: It will be shocking to those have not paid attention. If it looks like a drip, drip, drip, where it is just incremental, then people will be able to, and investors will be able to live with that pretty easily. If it goes like a rocket, which I cannot see happening, it would have to be something big externally, then look out below, because people will lose their senses and they will panic.
Mark Hamrick: At Bankrate, Marilyn, we constantly hear from savers about how miserly their returns are. And I think the focus there tends to be certificates of deposit, for example. Should those people who are complaining be looking at a variety of fixed income investments that provide greater yield?
Marilyn Cohen: Well, the answer is, if they are counting on living on that money, yes. And they are very late to the party, I might say, because in order for interest rates to really move up a lot and scare everybody, we need demand. You need demand in the economy. And you need a GDP growth that people have said was going to be 4 percent or 3 percent this year. And last I looked, we are half way through the year. And we have not seen that.
So I think that savers need to be less afraid and more bold. That does not mean buying 20 and 30-year bonds. That does mean buying something that is relatively short duration, meaning very insensitive to interest rate moves, and collect something more than a miserly CD rate or a miserly coupon. I mean, after taxes and after inflation, I have to say short-term Treasurys, short-term CDs, short-term corporate bonds, are not paying the bills.
Mark Hamrick: Now, in this low-interest-rate environment, it has been stated by any number of people that this is a function of supply and demand. And in this case, demand has been very strong for fixed income. Even as the stock market, we might add, has been rallying to record levels, do you think that this is going to continue to the extent that we do still have strong demand, even if central banks start to say, "We are not still as interested in this world as we used to be?"
Marilyn Cohen: Well, demand will -- there is always an ebb and flow. But you are correct. There has been very strong demand. And let me just go on the record that I think that the bond market is overvalued. And I think the stock market is overvalued.
Will they remain overvalued for an extended period of time? If you believe the Fed, because they are looking at the data as opposed to making their projections like they did in the past, then this overvaluation can last for a long time. And, when you take a look at not just domestic investors, but global investors -- even though our rates seem to be limbo-low, many of the other government securities, whether they are from Great Britain or Spain or Italy, many of those yields on their five-year and 10-year are significantly lower than ours. So, there continues to be that demand. And until that equation shifts, I think it is going to be more of the same.
Mark Hamrick: Well Marilyn, while the fixed-income world may sometimes not get the attention it deserves, whenever we talk about, I feel like you add a certain sparkle to it.
Marilyn Cohen: Well, thank you!
Mark Hamrick: Marilyn Cohen with Envision Capital Management. She spoke with us from her office in Los Angeles.
The follow-up of our bond market double-header moves to St. Louis, where Brian Rehling is chief fixed-income strategist for Wells Fargo Advisors.
We know that interest rates are low. To begin I asked Brian: Why?
Brian Rehling: Yeah, well, I think there are a couple of things occurring. But I think probably the most impactful has really been what's occurring globally, in the sense that if you look over in Europe, the ECB is engaged in their own easing programs to try to pull their recession out of some weakness. And that is pushing interest rates lower over in a lot of the developed euro countries. So, from a global investor's perpective, 10-year Treasury yields, if you think of the 10-year portion of the curve, they have many choices. And currently, with some of the actions occurring over in -- over in Europe, you have interest rates quite low.
So, you look in Germany, for instance, the 10-year yield there is a 1.35 today. France, 10-year yield: a 1.43. So, when you look at those types of comparisons, you know, being able to purchase a 10-year here at a 2.59 seems like a relative bargain. So, you are getting a lot of investor interest globally that is helping drive some of that demand and pushing our interest rates lower as a result.
So, yields here have fallen a bit lower on the year. That is, I think, a very significant contributor, and there are a few others, such as the economy here in the U.S. continuing to be a bit weak. The first quarter was not great by any standards, and some of the weather delayed some of the recovery here, so -- a lot of factors leading it to these lower rates, but I think really focusing in globally will tell a bit of the story.
Mark Hamrick: So, it is a demand-and-supply story, which is sort of basic economics. We know that central banks, including our own, continue to buy a variety of instruments, so whether it is long-term Treasurys or mortgage-backed securities. What happens when the Fed stops adding to its balance sheet, which people expect to happen later this year. Will that change the environment much?
Brian Rehling: I do not think it is going to change it much. The Fed should stop adding somewhere right around Halloween. And -- but the market already expects that. So, that has largely already been priced into expectations. So, I am not anticipating a significant move. I think there is lot of demand out there from global investors, as well as from investors here in the United States. A lot of large investors actually need to purchase some of those longer securities to get -- you match up where some of their liabilities are. So, I think there will be plenty of demand, and since it is fully built into expectations that the Fed are going to stop these purchases, I do not expect a big adjustment.
Mark Hamrick: OK, let's shift from being a central banker to an individual investor. When you are talking about fixed-income, obviously, there's a variety of items that one can invest in or purchase. Why does fixed-income make good sense for the individual investor in some form?
Brian Rehling: Well, you know, the primary reason you see fixed-income in portfolios is: 1.) It tends to be -- have much less volatility than you'll find on the equity side. So, as investors get closer to retirement or find themselves in a situation where they can't experience a lot of volatility in their search for returns, you see those fixed-income allocations increase in size. So, it's that stability and also tends to be negatively correlated with your equity portion of your portfolio. So, what you would ideally like to see is if one portion of your portfolio goes up, you know, perhaps the other part -- while you wouldn't prefer it to go down, it tends to. But what really, the benefit is when you say your equities go down in in value, the fixed-income tends to improve in value. So, it helps smooth out some of your returns as well. So, a lot of good reasons investors include fixed-income in their portfolios.
Mark Hamrick: So, you spoke earlier about demand exceeding supply, essentially. Have individual investors been part of this mix -- in other words, have they been just as eager to buy into bonds as central banks, relatively speaking?
Brian Rehling: You know, absolutely. We've seen a lot of renewed interest from investors in the bond market this year. I think investors, retail investors, got a bit of a scare in the middle of last year when interest rates rise rather dramatically, and we saw some outflows. But that back -- has reversed. And, you know, investors -- on the retail side, we see a very much looking for income, and so that means lower credit quality and longer maturities, or some combination thereof, tend to be the strategies that are of interest to retail investors currently.
Mark Hamrick: And what kind of return do they get on that investment these days?
Brian Rehling: Well, you know I think it depends on exactly how much risk you're willing to take, but in the high yield market, you know, yields of 5 percent-plus are not uncommon, and those tend to be the type of yields that investors have been seeking out. They also have tended to perform quite well over the last several years. So, retail investors, again, seeing that strong past performance and reasonable yields in a low-yield environment, continue to gravitate those. But I would caution everyone that past performance definitely not indicative of future returns, and we are concerned a bit about some excess building up in the those areas.
Mark Hamrick: Hey, Brian terrific advice there. Thanks so much for your time.
Brian Rehling: You bet -- thanks for having me.
Mark Hamrick: Brian Rehling, chief fixed-income strategist with Wells Fargo Advisors. He spoke with us from St. Louis.
And for more on investing advice involving bonds, stocks and many other areas, check out our website and apps at Bankrate.com.
As we've migrated much of our digital experience to the smartphone, you can now be a smarter consumer by taking advantage of some of the terrific apps available for budgeting.
Bankrate's Lance Davis tells us more.
Lance Davis: Put away that spreadsheet and pull out your smartphone. Mobile technology is making it easier than ever to budget wisely.
Startups are creating new ways for users to create and stick to a budget. Apps such as Money by Jumsoft and Mint can help you create a budget in just a few taps. These services ask a few quick questions about your finances and generate customized plans to help you maximize your money. Some apps even send push notifications to alert you of how much money you have remaining in your account.
Creating a budget is an important step, but budgets only work if you stick to them. Budget apps can help you stay motivated. Instead of waiting around for paper statements, mobile apps can provide constant access to financial information. This allows you to instantly check your progress, which can affect your spending behavior.
There are a number of budget apps available, so be sure to find one that fits your financial situation. For more on mobile finance, head on over to Bankrate.com. I'm Lance Davis.
Mark Hamrick: This week in business history:
July 5, 1946. The small, two-piece women's bathing suit, better known as the bikini, had its modern introduction at a Paris fashion show.
Historians tell us the two-piece swimsuit goes back to ancient times, but this event in Paris was the equivalent of a modern launch. Later, it got a boost from the likes of actresses Brigitte Bardot and Ursula Andress in the movies. And it became ensconced as standard fare as beachwear in much of the world.
Happy birthday, bikini!
You've been listening to "Your Money This Week."
For more on this and other personal finance issues, visit Bankrate.com. Thanks to editor Doug Whiteman and to producer Lucas Wysocki for his work in the studio.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.
During May, the economy added 217,000 jobs while the unemployment rate remained at 6.3 percent.
There's a case to be made for an expansion in the labor force as the job market improves, Mayland says. It is a little like more people wanting to crowd into the employment party, seeing that others have enjoyed success.
"As this economy continues to forge ahead -- and it is forging ahead -- and as unemployment declines more, hopefully some of these people that have dropped out of the labor force will come back into the labor force and will find employers willing to take them in," he says.
Brother, can you spare a raise?
If the job market improves broadly, there could be a point where it shifts from one in which employers hold most of the power to one in which workers hold some of the power cards. Jeff Rosen, economist with Briefing.com, thinks that turn could already be underway. He points to recent figures from the Labor Department on job openings and labor turnover.
"The lack of unemployed and qualified workers means that those who do have jobs are in position to demand higher wages," Rosen says. What's the impact on your financial bottom line? "Wage growth may finally be able to surpass current inflation levels."
That would truly be something for Americans to celebrate.
Auto sales and the World Cup
The U.S. team at the World Cup was cheered for scoring something akin to a victory last week even while tying, because the U.S. still advanced in the competition. Similarly, even if there's a minus sign attached to June auto sales, that shouldn't detract from what's seen as a positive trend overall.
Automakers are expected to report a 3 percent decline in June sales, compared to the previous month. Edmunds.com senior analyst Jessica Caldwell notes that the overall trend is still positive because there were "fewer sales days" in the reporting period. Looking at it another way, it's believed that consumers were buying 2,700 more cars per day in June than they purchased a year earlier.
This week in business history: The bikini
On July 5, 1946, the small two-piece women's bathing suit, better known as the bikini, had its modern introduction at a Paris fashion show.
Historians tell us the two-piece swimsuit goes back to ancient times, but the event in Paris was the equivalent of its modern launch. Later, it got a boost from movie actresses Brigitte Bardot and Ursula Andress.
In the years since, it has become a beachwear standard in much of the world.
Follow me on Twitter: @Hamrickisms